The accounting deficit of defined benefit (DB) pensions at the UK’s top 350 organisations has increased from £29 billion at the end of June 2018 to £32 billion as of 31 July 2018, according to research by Mercer.
The Pensions risk survey, which analyses the pension deficit calculated using the approach FTSE 350 organisations have to adopt for their corporate accounts, also found that the accounting deficit of DB pension schemes for the FTSE 350 has fallen from £72 billion at the start of 2018 to £32 billion by 31 July 2018, showing a decrease of £40 billion.
Liability values have increased from £818 billion at the end of June 2018 to £826 billion at the end of July 2018, recording a rise of £8 billion. Asset values have also increased by £5 billion, rising from £789 billion to £794 billion at the end of July 2018.
The funding level has remained at 96% over the last month.
Ali Tayyebi (pictured), senior partner at Mercer, said: “The big reduction in accounting deficits so far this year is welcome news. However, pension scheme trustees typically use gilt yields as a basis for measuring the funding position and setting contribution rates. Gilt yields have not risen by as much as corporate bond yields since the start of the year, therefore trustees may not have seen the same degree of improvement on funding valuations. Nevertheless, trustees and employers need to continue to ask themselves how much risk they need to take to meet their objectives.”
Le Roy van Zyl, strategic advisor and partner at Mercer, added: “[While] July saw the deficit remain stable, continued uncertainty over the outcome of the Brexit negotiations means there is a clear need for pension scheme trustees and sponsors to be prepared for the fluctuating circumstances.
“This preparation should focus on scheme finances and risk, but also the challenges of making effective decisions against this uncertain backdrop. A range of outcomes are possible and it is important that schemes work through scenarios to establish whether there would be a material impact to their scheme under any of the scenarios.”