FTSE 350 DB pension deficit falls by £7bn amid market volatility

The accounting deficit of FTSE 350 companies’ defined benefit (DB) pension schemes fell by £7bn in March to £69bn, according to Mercer’s Pension Risk Survey.

The tracker showed that liabilities had fallen to £837bn at the end of March, down from £846bn at the end of February, driven by further rises in corporate bond yields, whilst asset values were broadly unchanged at £768bn compared to £770bn at the end of February.

However, Mercer clarified that the month end position does not tell "the whole story", with the FTSE 350 pension deficit ranging from £57bn to £97bn over the month amid market volatility.

Indeed, Mercer UK wealth trustee leader, Tess Page, noted that whilst the first quarter of 2022 has closed out with an overall improvement in accounting deficits since the start of the year, it was “quite a ride with a number of big dips in markets along the way”.

“The main driver of the change has been bond yields and their impact on liability values," she explained.

"Q1 2022 has been one of the worst quarters for government bonds in recent memory – but from a pension scheme perspective this generally means “good” news for underhedged schemes, as liability values dropped dramatically.

“Many trustee boards and sponsors with clear journey plans may now find themselves comfortability on track or even ahead of target, and will be taking advantage of de-risking opportunities”.

Mercer’s Pensions Risk Survey data relates to approximately 50 per cent of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach companies have to adopt for their corporate accounts.

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