FTSE 350 pension deficits increase by £10bn in five days


The accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed organisations increased by £10 billion in the five days to 4 August 2016, according to research by Mercer.

Its Pensions risk survey, which is based on analysis of pension deficits using the approach organisations adopt for their corporate accounts, found that accounting deficits increased from £139 billion at the end of July to £149 billion on 4 August, when the Bank of England’s Monetary Policy Committee cut interest rates from 0.5% to 0.25%.

There was a £4 billion rise in asset values, from £717 billion on 29 July 2016 to £721 billion on 4 August 2016. Liability values increased by £14 billion, rising from £856 billion to £870 billion.

These are the highest pension liability and deficit levels recorded by Mercer since it began monitoring deficits monthly.

Ali Tayyebi, senior partner in the retirement business at Mercer, said: “This sudden increase reminds us that it is the outlook for future long-term secure investment returns that drives pension scheme deficits, much more than the short-term performance of assets.”

Le Roy van Zyl, senior consultant in the financial strategy group at Mercer, added: “The aftermath of the vote for Brexit is still having a significant impact. The Bank of England’s actions should help to support economic activity, but whether the economy is going into recession is still unclear.

“This will of course have an effect on pension scheme finances and the health of sponsors; in some cases significantly so, depending on schemes’ investment strategy and the nature of the sponsor’s business.

“As these uncertainties may well not clear up for some time, and there is likely to be significant volatility still to come, it is not appropriate to follow a wait-and-see approach for the majority of schemes. Opening a dialogue between trustees and sponsors around how to tackle potential developments is a key step that can be taken in the face of these uncertainties.”