Towers Watson research: FTSE 350 pension deficit rises £2 billion a day

Pension deficits of FTSE 350 organisations have increased at an average rate of more than £2 billion a day during August, according to research by Towers Watson.

The firm calculated that the aggregate deficit in FTSE 350 firms’ defined benefit (DB) pension schemes has increased by £21 billion so far this month, from £52 billion at the end of July to £73 billion when markets closed on 10 August.

Assets have fallen from £506 billion to £480 billion, while liabilities have fallen from £558 billion to £553 billion.

John Ball, head of UK pensions at Towers Watson, said: “Until Wednesday, more than half of the drop in asset prices this month had been offset by a fall in liabilities, mainly because a dampening of inflation expectations meant organisations could budget for smaller pension increases.

“However, this has now been largely cancelled out by a sharp fall in corporate bond yields, which makes pension obligations on organisation balance sheets look bigger under accounting rules.

“As a result, liability changes are no longer shielding organisations from the impact of asset price falls.

“Deficits are now at their highest level since employers banked the saving they would make from using consumer price index (CPI) inflation to calculate some of the pension increases that must be awarded in future.”

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