FTSE 350 defined benefit pension deficit falls to £29bn

pension deficit

The defined benefit (DB) pension deficit at the UK’s top 350 organisations has decreased from £72 billion at the start of 2018, to £29 billion on 29 June 2018, according to research by Mercer.

The research, which analyses the pension deficit calculated using the approach FTSE 350 organisations have to adopt for their corporate accounts, also found that liability values decreased by £39 billion by 29 June 2018, reaching £818 billion. This compares to the £857 recorded at the end of 2017.

Asset values were £789 billion as of the end of June 2018, an increase of £4 billion, compared to the £785 billion that was recorded at the end of 2017.

The quoted funding level improved from 92% to 96%.

Alan Baker, head of DB solutions and partner at Mercer, said: “The first half of 2018 has seen a modest increase in asset values but the real story of [the first half of] 2018 is the huge reduction in deficits so far this year. This is good news which could be further improved once the latest longevity experience is brought into account.

“However, market volatility could dramatically reverse these improvements and has done so in the past. Trustees who run schemes need to continue to be prudent and ask themselves how much risk they really need to take to meet their funding requirements.”

Le Roy van Zyl, strategic advisor and partner at Mercer, added: “At the beginning of the year, our expectation had been that 2018 would see schemes reduce risk and consolidate gains and that is proving to be the case. With continued uncertainty over the outcome of the Brexit negotiations, there is a clear need for pension scheme trustees and sponsors to be prepared for the fluctuating circumstances, not only in terms of scheme finances and risk, but also around the challenges of making effective decisions against this uncertain backdrop.”