FTSE 350 pension deficit decreases £17bn in volatile September

The FTSE 350’s collective pension deficit decreased by £17bn in September in a volatile month for pension valuations.

Data from Mercer’s Pensions Risk Survey showed that the overall accounting deficit for DB schemes run by companies in the FTSE 350 decreased from £67bn at the end of August to £50bn at the end of September.

Daily figures for last month show that deficit levels fluctuated from £49bn to £74bn, a range of £25bn, in an erratic month.

Liability values also varied by £45bn over September, eventually decreasing by £8bn to £906bn, while asset values increased from £847bn to £856bn.

Mercer wealth business partner and corporate consulting leader, Maria Johannessen, said that volatility was the real story over the past month.

“This uncertainty shows that there is a real benefit to actively monitoring the funding position and spotting opportunities to manage risks when circumstances are supportive of doing so,” she advised.

Her colleague, Mercer actuary Charles Cowling, put the volatility down to uncertainty over Brexit, speculation over a possible general election and fears for the global economy.

“Against this backdrop of political uncertainty sources within the Bank of England [have] indicated that it may, once again, have to cut interest rates, which could send pension liabilities to even higher levels,” warned Cowling.

“Trustees that have not fully hedged their interest rate risks could see pension deficits soar. In such difficult times, trustees should think carefully about running any interest rate risks.

"Indeed, those that have not fully hedged against falls in interest rates are effectively thinking that they know better than the markets — and thus putting pension scheme funds at risk.

"This may be brave, but many will see it as irrational. Trustees should urgently look at the investment risks they are running and consider putting in place pragmatic de-risking strategies at the earliest opportunity.”

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