The combined deficit of FTSE 350 defined benefit pension schemes dropped by £8bn over 2017, Mercer has revealed.

The deficit fell from £84bn to £78bn, a fall of over 9 per cent, the survey by Mercer found. Over the year liability values increased to £857bn from £821bn, however this was offset by a £44bn increase in asset values, from £737bn to £781bn.

Looking forward, Mercer’s research estimates that the improved financial position of FTSE350 pension schemes may directly lead to increased profits of around £400m in 2018. Mercer partner and chair of the DB policy group Alan Baker said: “This is really positive news for the UK economy because improved profits in 2018 resulting from lower pension costs could amount to £400m among the FTSE350.

“This is money which can be invested to stimulate growth and drive the British economy, or can be returned directly to investors. The pension deficit decrease is a welcome reversal of the trend in recent years that saw the deficit more than double in 2016 alone. Trustees who run schemes however need to continue to be prudent and ask themselves how much risk they need to take to meet their funding requirements.”

However, Mercer partner and head of risk transfer consulting Andrew Ward warned that despite the “great news” the levels of risks being taken are “still significant” and the positive outcome we have seen for 2017 is very closely linked to stock market performance.

“As we move into 2018, it’s important for individual schemes to consider how prepared they are for any market shock. With Brexit related uncertainty trustees need to consider the potential impact on their sponsor’s financial security. Against this backdrop, we expect schemes to reduce risk and consolidate gains. The pace of risk management activity we saw in 2017 is likely to accelerate and we expect 2018 to be the biggest year ever for pension risk transfer.”

Mercer’s data relates to about 50 per cent of all UK pension scheme liabilities and analyses 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.

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