Mercer research: Deficit of FTSE 350 defined benefit pension schemes rises

The deficit of FTSE 350 defined benefit (DB) pension schemes has risen £20 billion over past month, according to research by Mercer. 

The Pensions risk survey found that the aggregate FTSE 350 DB pension scheme deficit stood at £80 billion at 30 November 2011, compared to £60 billion at 31 October 2011.

Ali Tayyebi, senior partner and pension risk group leader at Mercer, said: “As well as the month-on-month fall in the accounting deficit, there was considerable intra-month volatility with funding levels falling by as much as 6% at one point during the month.

“We are beginning to see the bad economic news catch up on the accounting numbers, which had so far been relatively protected in the midst of the general economic turmoil.

“The relentless fall in gilt yields, due to the Eurozone debt crisis and quantitative easing in the UK, is now also pushing down the real yield on high-quality corporate bonds.

“If 30 November conditions are mirrored at 31 December then many organisations will be seeing an increased deficit on their balance sheet at the year end.”

Adrian Hartshorn, partner in Mercer’s financial strategy group, added: “There are a number of economic scenarios, which could play out.

“More organisations and pension scheme trustees are looking at scenario analysis to help them plan actions for those scenarios which they are most worried about or those which in fact might give them the best opportunities to reduce longer-term risk.

“This includes implementing some of the more non-traditional risk management strategies such as longevity hedging, liability-management exercises or the use of non-cash funding options to smooth cash contribution requirements.”

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