The accounting deficit for defined benefit (DB) pension schemes at the UK’s top 350 organisations has decreased by £19 billion, from £72 billion at the end of March 2018 to £53 billion at the end of April 2018, according to research by Mercer.
The research, which analyses pension deficits calculated using the approach FTSE 350 organisations have to adopt for their corporate accounts, found that April’s £19 billion reduction is the largest recorded fall in DB pension deficits for the FTSE 350 since quarter four in 2016.
Liability values decreased by £12 billion by the end of April 2018, falling to £826 billion. This is compared to £837 billion recorded at the end of February 2018.
Asset values increased by £7 billion, reaching £773 billion at the end of April 2018.
Alan Baker (pictured), head of DB solutions development and partner at Mercer, said: “We have already seen a meaningful reduction in the pensions gap during 2017 and quarter one 2018 and April’s sharp reduction continues this trend.
“However, the static asset valuations that we have seen for several months and greater volatility in liabilities demonstrate the importance of trustees and sponsors understanding the overall level of risk facing their pension scheme. Trustees and sponsors should ensure they have plans in place to protect them from any downside and to ensure their exposure is in line with their risk appetite.”
Adrian Hartshorn, senior partner at Mercer, added: “After a decade of falling yields and increasing longevity expectations, market conditions appear to have stabilised and in many cases are moving to improve the finances of pension schemes.
“However, the same uncertainties remain, and scheme sponsors and trustees should take the opportunity to lock in the improvements in the funding position. There are a number of real actions that trustees and sponsors could implement that take advantage of current market conditions, including a range of member options, insurance market solutions and asset-liability hedging.”
