FTSE 350 liability values varied by almost £30bn between their high and low values during June 2017, Mercer has reported.

According to Mercer’s Pension Risk Survey, despite fluctuations, the accounting deficit of defined benefit pension schemes for the UK’s FTSE 350 companies fell by £3bn from £134bn at the end of May to £131bn on 30 June 2017.

Liability values fell by £14bn to £869bn at 30 June from £883bn at the end of May. Asset values fell by £11bn from £749bn in May to £738bn at the end of June.

Mercer senior patner Ali Tayyebi said: “Asset values and liability values tracked each other relatively closely over the month even after the talk of possible future interest rate rises increased. However, the apparent stability of the deficit hides the fact that liability values varied by nearly £30bn between their high and low values during the month. This highlights the potential for continued volatility in deficits in scenarios where assets and liabiliies do not track so closely to each other.”

Mercer partner Le Roy van Zyl, added: “The drivers affecting pension fund finances are still volatile. For example, towards the end of the month funding levels were supported significantly by improving long term interest rates. Given that we have had such improvements before, only for rates to subsequently deteriorate again, trustees and sponsors need to decide whether to lock in some of this good news. Some may have programmes in place already to de-risk as soon as conditions improve, but these are quite possibly out of date.

“With changes in economic outlook, developments in a sponsor’s financial position, and the fluctuating attractiveness of other sources of risk, a different de-risking action may be appropriate. Indeed, it may be appropriate to replace a scheduled action with another that better fits the current circumstances and views. Under an integrated risk management framework it is important that regular review takes place across the range of areas being pursued.”

Mercer added that allowing for changes in financial markets through to 30 June 2017, changes to the FTSE 350 constituents and newly released financial disclosures, the estimated aggregate assets were £738bn, compared with the estimated value of the aggregate liabilities of £869bn.

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