FTSE 350 DB pension surplus rises by £7bn

The accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased by £7bn over August, Mercer has revealed.

Mercer’s Pensions Risk Survey found that the total surplus was £9bn at the end of August, an increase from the £2bn surplus at the end of July.

Liabilities fell by £52bn over the month, from £709bn at 29 July to £657bn at the end of August.

Mercer attributed this fall in liabilities to rising corporate bond yields offset by a rise in the market’s view of future inflation.

Asset values were found to have also fallen over the period to £666bn, compared to £711bn at the end of July, a fall of £45bn that “reduced the impact of the liability falls”.

The firm noted that the cost-of-living crisis squeezing members’ finances could result in schemes and sponsors seeing increased member activity over the coming months.

Mercer principal, Matt Smith, commented: “The August aggregate funding position on an accounting basis has remained in surplus, despite inflation expectations rising. But the aggregate funding position has been volatile over August 2022 and there is no sign that stability is around the corner.

“Bond yields jumped through the 4 per cent mark – the first time for eight years – and inflation expectations continue to increase.

“While rising inflation creates many challenges for individuals and businesses, it will be a welcome relief that pension schemes’ funding continues to fend off these effects.”

Smith added that, with the cost-of-living crisis continuing to rise and members’ personal finances expected to be squeezed over the remainder of the year, schemes may see increased member activity as members explore options to bolster household incomes.

“Trustees and sponsors will play a key role in ensuring members understand their options and receive fair value for their benefits,” he continued.

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