FTSE-350 pension deficits hit £100 billion

FTSE-350 pension deficits rose above £100 billion over April 2013, according to research by consultancy Mercer.

Its Pensions risk survey, which collected data from 320 UK pension schemes, revealed that the estimated aggregate IAS19 deficit for FTSE-350 defined benefit (DB) pension schemesstood at £108bn at 30 April 2013, compared to a deficit figure of £89 billion at the end of March 2013.

The research also found that:

  • Asset values increased from £552 billion at 31 March 2013, to £557 billion at 30 April 2013. 
  • There was a significant fall in high-quality corporate bond yields with the net effect that total liabilities increased in value from £641 billion at 31 March 2013, to £665 billion at 30 April 2013. 

Ali Tayyebi, head of DB risk in the UK at Mercer (pictured), said: “The equity markets recovered well from their dip early in the month and asset values increased by around £5 billion over April. 

“It will therefore be a surprise and disappointment to many that both liability values and deficits still managed to reach highs not seen for several years. 

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“The key driver was the fall in high-quality corporate bond yields, which have closely tracked the sharp falls in real gilt yields in late March to early April, so that the difference between the yield on these corporate bonds and market-implied price inflation is now only just more than 1% per annum.  

“The environment is proving particularly frustrating for many schemes which will have experienced significant improvements in their asset values but which feel that de-risking into gilts does not look particularly attractive at current prices.”

Graph - FTSE 350 Pension Deficits
Mercer’s Pensions Risk Survey