FTSE 350 pension scheme deficits increase slightly in a volatile month

FTSE 350 pension scheme deficits increase slightly in a volatile month

Mercer’s Pensions Risk Survey data shows that the accounting deficit of defined benefit (DB) pension schemes and other post-retirement benefit plans for the UK’s 350 largest listed companies rose by £1bn over the course of September, standing at £88bn at the end of the month, an increase from £87bn at the end of August.

The increase was driven by a £40bn fall in asset values from £847bn at 31 August 2021 to £807bn at the end of September. Liabilities fell to £895bn compared to £934bn at the end of August, caused by a rise in corporate bond yields offset by a rise in market expectations for future inflation.

But the headline increase in deficit does not show the whole picture. Over the month the deficit varied from £82bn to £103bn.

“This month’s FTSE 350 numbers reinforce the variability still inherent in scheme funding positions,” said Tess Page, UK Wealth Trustee Leader at Mercer: “A choppy month for funding levels which highlighted that schemes with the right governance processes have to lock in funding gains when they can, by taking risk off the table.

“In a timely update this week, our European Asset Allocation Insights, highlighted how most schemes are still looking to de-risk, with 44% aiming for self-sufficiency 34% targeting buy-out with an insurer. The research also demonstrated how DB plans are looking to de-risk gradually from growth assets into liability-matching assets and to increase hedge ratios opportunistically.”

Mercer’s Pensions Risk Survey data relates to about 50% of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach companies have to adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts. Other measures are also relevant for trustees and employers considering their risk exposure. Data published by the Pensions Regulator and elsewhere tells a similar story.

Published at Mon, 04 Oct 2021 04:53:27 +0000

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