FTSE 350 DB pension deficit rises to over £100bn

The combined accounting deficit of defined benefit (DB) pension schemes for FTSE 350 companies increased by £13bn in July to reach £103bn, according to Mercer.

Its Pensions Risk Survey found that falling bond yields had caused liabilities to increase by £13bn over the month to £970bn.

Meanwhile, asset values remained unchanged from the end of June, at £867bn.

In comparison to 12 months ago, the combined deficit has increased by £62bn.

Mercer urged trustees to maintain monitoring as the pandemic continues to affect the UK economy.

“Pension scheme deficits worsened again in the last month and compared to 12 months ago, as market turmoil continues,” said Mercer chief actuary, Charles Cowling.

“In the UK, many sectors are still operating in crisis mode and some experts predict it will be 2024 before the UK economy returns to normal.

“These are testing times for trustees who, more than ever, need to understand the financial challenges facing sponsoring employers. Focus will be on the Bank of England this week as it meets to review interest rates.

“Although a change to base rates is unlikely, it seems that markets are already pricing in a cut to negative rates and the bank is expected to publish a report on the prospect of negative rates. Now is not the time for pension trustees to be increasing investment risk.

“Rather, where possible, trustees should consider reducing risk, taking market opportunities to increase hedging programmes and contemplate lower risk contractual cash flow matching investments.”

Mercer’s Pensions Risk Survey data relates to about 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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