FTSE 350 defined benefit pension deficit falls by £22bn


The accounting deficit of defined benefit (DB) pension schemes for the UK’s largest 350 organisations fell by £22 billion from £149 billion on 31 October 2016 to £127 billion on 30 November 2016.

Its Pension risk survey, which is based on analysis and projections of FTSE 350 organisations’ financial statements adjusted from their financial year end, also found that asset values fell from £711 billion at the end of October, to £701 billion at the end of November.

Liability values were £828 billion as of 30 November 2016, which is a decrease of £32 billion from the £860 billion recorded on 31 October 2016.

Ali Tayyebi (pictured), senior partner, retirement at Mercer, said: “The increases in corporate bond yields over the month has resulted in the largest monthly fall in liability values since June 2015.

“The resulting reduction in deficits will be positive news as we near the reporting year end for many [organisations], albeit the reduction is from some of the all-time highs seen in recent months and still leaves us well behind the start of the year. The challenge for many corporate sponsors and trustees may surely be the question of when would be the right time to lock in some of this good news.”

Le Roy van Zyl, senior consultant at Mercer, added: “Markets have been very volatile in the wake of the surprise election of Donald Trump, with the aggregate impact being favourable for pension schemes’ funding position. Without wishing to put a dampener on this improved position though, there is still very little clarity on how the economic and financial conditions will develop from here on out as a result of his election. This needs to be combined of course with ongoing uncertainty in Europe and Brexit.

“Questions trustees and sponsors should be asking themselves are whether this is the time to take off some of the risk which has recently been rewarded, and whether they are comfortable that they can deal with the range of scenarios that can emerge in the months and years to come.”