FTSE 350 DB schemes’ surplus falls by £9bn

The accounting surplus of FTSE 350 companies’ defined benefit (DB) pension schemes declined by £9bn to £2bn in July, according to Mercer’s Pensions Risk Survey.

It showed that liabilities rose from £667bn at 30 June 2022 to £709bn at 29 July, with the increase driven by falls in corporate bond yields and a rise in the market’s view of future inflation.

This was partially offset by asset values also increasing over the same period, from £678bn to £711bn.

July’s fall in FTSE 350 companies’ DB scheme funding levels was the first decline since January 2022, with Mercer’s Pensions Risk Survey reporting a surplus in the schemes’ aggregate funding position on an accounting basis for the first time in over three years last month (June 2022).

Commenting on the latest figures, Mercer principal, Matt Smith, said that the reduction in surplus was a timely reminder for trustees and sponsors looking for opportunities to lock in funding gains that markets remain volatile.

“If you blink there is always the chance you might miss it,” he stated.

“Last week also saw the Department of Work and Pensions issue its long-awaited consultation on funding regulations, with a proposal for pension schemes to have their long-term plans set out in a funding and investment strategy.

“The proposed regulations could significantly change long term funding objectives and will increase the focus on journey planning.

“With funding positions currently strong, employers may wish to strengthen their engagement with trustees on potential opportunities and consider the end game for their schemes.”

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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