FTSE 350 DB pension deficit increases by £18bn in June

The accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies expanded from £72bn to £90bn in June, according to Mercer.

Data from the firm’s Pensions Risk Survey found the £18bn increase in deficit, which left the deficit at its highest point since 2016, was driven by a £24bn rise in liabilities during the month, climbing from £933bn to £957bn.

This liability increase outpaced asset value growth, which came in at £6bn as asset values increased to £867bn.

The month also saw a deterioration in scheme funding levels, which are now sitting at around 92 per cent, the lowest since 2017.

Mercer chief actuary, Charles Cowling, said: “Pension deficits worsened again in the last month and compared to 12 months ago, as market turmoil continues to affect pension schemes. While coronavirus lockdown measures are easing across Europe, the global outlook remains bleak.

“Coronavirus cases globally are not only increasing but accelerating, with South America and India seriously affected. The US is also showing signs of a significant second wave with increases in cases and mortalities.”

Cowling stated that trustees should now be looking to reduce risk, adding that Mercer research of 70 buyout deals had showed “that despite the potential cash drain and accounting impact of a buyout deal there is evidence to suggest buyouts have a neutral or positive impact on share prices – thus benefiting both trustees and employers”.

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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