Corporate bond yield decline fuels FTSE 350 pension deficit high

A further reduction in AA corporate bond yields prevented any significant improvement in the average deficit of FTSE 350 defined benefit (DB) pension funds in January, according to research by Mercer.

Its Pensions risk survey found that average liability values of FTSE 350 company DB schemes increased from £478 billion at 31 December 2011 to £487 billion at January 31 2012.

This resulted in the average aggregate international accounting standards (IAS) 19 deficit across the index totalling £83 billion as at 31 January 2012, broadly in line with the £84 billion reported a month earlier. This is in spite of liability values having increased from £562 billion to £570 billion during the same period.

Ali Tayyebi, senior partner and pension risk group leader at Mercer, said: “The changes in January highlight a number of factors at play driving the overall funding level.

“Although the FTSE 100 increased by around 2% over the month, pressure remained on the liability side, with AA corporate bond yields reducing even further over the month.

“Corporate focus was inevitably on the year end position as at 31 December 2011. Nevertheless, it is disappointing to see no improvement in funding levels over the first month of 2012, with deficits remaining stubbornly high following the deterioration during 2011.”

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Mercer’s data relates to around 50% of pension scheme liabilities.

Read more articles on pension scheme deficits