The FTSE 350 pension deficit reduction of £1bn in February 2018 is “good news for UK businesses”, Mercer has commented.

The defined benefit deficit of FTSE 350 firms was reduced by £1bn in February to £72bn and saw a combined fall of £3bn since January 2018 – matching half the total decline achieved in 2017.

The fall was largely driven by rising corporate bond yields reducing pension schemes’ liabilities, however this was partially offset by a rise in market implied inflation, Mercer explained.

As at 28 February, FTSE 350 liabilities had fallen by £7bn to £837bn and asset values also dropped by £6bn to £765bn.

Commenting on the deficit reduction, Mercer DB policy group partner and chair Alan Baker noted that while this is “good news”, the fluctuations over the month of February reiterate that trustees and sponsors should be aware of the overall level of risking facing their pension scheme.

“Trustees and sponsors should put in place the necessary steps to mitigate against future volatility and ensure any potential downside is in line with their risk appetite. They should also make sure the right governance is in place to allow them to respond and react in time,” Baker said.

Mercer partner and strategy adviser Le Roy van Zyl added: “While this is more welcome news for UK pension schemes, many are alive to the risks they face through continued economic uncertainty. More recently, schemes have been seeking certain strategies that allow them to retain some upside potential, such as with equity prices, whilst protecting themselves from the most adverse outcomes. While this approach foregoes some of the gains they might otherwise achieve, it ensures they are well placed to weather a hard storm.”

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.

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