The combined deficit of FTSE 350 defined benefit schemes has fallen to £64bn, according to latest figures released by Mercer.

Data from Mercer’s Pension Risk Survey, shows that DB schemes reduced by £3bn on October’s figures, due to liability values dropping from £832bn to £829bn at the end of November, while asset values remained unchanged at £765bn.

The results mean the deficit is at its lowest since March 2016, while the figure is £20bn lower than at the end of 2016. The funding level has remained the same at 92 per cent. However, Mercer partner, Alan Baker, believes the market still needs to consider its risk strategy.

“Experience suggests it would be unwise to rely on this and the critical question for all sponsors and trustees should therefore be, how much risk do we need to continue to take to meet our objectives?”, Baker said.

Baker also highlighted the fact that risk management has been a particular theme throughout 2017, expecting it to continue into 2018, and believes giving members more choice through member option exercises allows companies to reduce balance sheet risk.

According to Mercer, many of the FTSE 350 companies are looking to take advantage of a better financial position than they anticipated, while improvements in the International Accounting Standard 19 (IAS 19) of FTSE 350 pension plans during 2017, could see FTSE 350 profits grow by £500m due to lower pensions costs.

Partner and strategy specialist at Mercer, Le Roy van Zyl, said: “We want to urge decision makers to approach this situation with a holistic mindset, making sure they challenge themselves to consider the range of feasible actions on offer, not just the traditional ones.
“This expected P&L improvement could create some headroom for companies to transfer pension risk off their balance sheet.”

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