FTSE 350 DB deficit falls by £21bn in August - Mercer

The accounting deficit of defined benefit (DB) pension schemes for FTSE 350 companies decreased from £103bn at the end of July to £82bn on 28 August, according to Mercer.

Using data from it Pensions Risk Survey, Mercer said the reduction in deficit was driven by liability values falling from £970bn to £940bn in the same period, although the effect of this was slightly offset by asset values declining by £9bn to £858bn.

Despite the upturn, the FTSE 350 companies’ pension deficits remain in excess of pre-pandemic levels, with deficits having sat below £70bn in the two and a half years preceding the global health crisis.

Mercer chief actuary, Charles Cowling, said the month had been quiet for pension schemes due to “markets holding up well and long-term inflation worries easing”, although he highlighted the forecasts from the Bank of England that the economy will shrink by 9.5 per cent in 2020 while unemployment seems poised to “almost double”.

He continued: “However, the bank’s latest forecasts also assume that there is no Covid-19 second wave and that the UK achieves a post-Brexit trade agreement with the EU by year-end. Both of these are far from certain. Across Europe and globally coronavirus case numbers are escalating sharply.

“In the absence of a vaccine emerging, any further easing of lockdown measures seems unlikely especially as September will see students returning to schools and universities in the UK.”

Mr Cowling concluded: “With all this systemic risk in the economy and markets, trustees are urged to monitor carefully and be ready to seize opportunities to reduce risk and increase hedging programmes. Now may be a good time for trustees to consider a move to lower risk contractual cash flow matching investments.”

Mercer’s survey data relates to around 50 per cent of all UK pension scheme liabilities and analyses pension deficits calculated using the approach companies have to adopt for their end of year accounts.

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