FTSE 350 defined benefit pension deficit falls to £72bn

Alan Baker

The accounting deficit for defined benefit (DB) pension schemes at the UK’s top 350 organisations has decreased by £1 billion, from £73 billion at the end of January 2018 to £72 billion at the end of February 2018, according to research by Mercer.

Its research, which analyses pension deficits calculated using the approach FTSE 350 organisations have to adopt for their corporate accounts, also found that liability values decreased by £7 billion at the end of February 2018, falling to £837 billion. This is compared to £844 billion recorded at the end of January 2018.

Asset values also fell by £6 billion, to £765 billion at the end of February 2018 from £771 billion at the end of January 2018.

Alan Baker (pictured), partner and chair of the DB policy group at Mercer, said: “2018 has started where 2017 left off, with a reduction in the pension gap and good news for UK businesses. Underlying the good headline news, February actually saw significant fluctuations, and this demonstrates the importance of trustees and sponsors understanding the overall level of risk facing their pension scheme.

“Trustees and sponsors should put in place the necessary steps to mitigate against future volatility and ensure any potential downside is in line with their risk appetite. They should also make sure the right governance is in place to allow them to respond and react in time.”

Le Roy van Zyl, partner and strategy advisor at Mercer, added: “While this is more welcome news for UK pension schemes, many are alive to the risks they face through continued economic uncertainty. More recently, schemes have been seeking certain strategies that allow them to retain some upside potential, such as with equity prices, [while] protecting themselves from the most adverse outcomes.

“While this approach foregoes some of the gains they might otherwise achieve, it ensures they are well placed to weather a hard storm.”