Falling yields push FTSE 350 DB pension deficit up by £6bn

The aggregate accounting deficit of FTSE 350 companies’ defined benefit (DB) pension schemes increased by £6bn over the course of October, reaching £94bn at the end of the month, according to Mercer’s Pension Risk Survey.

The increase was attributed to a £36bn rise in liabilities, from £895bn at 30 September 2021 to £931bn at the end of October, which was driven by a fall in corporate bond yields.

Asset values, meanwhile, increased from £807bn at the end of September to £837bn at the end of October, with the deficit throughout the month varying from £93bn to £118bn.

Commenting on the latest update, Mercer UK wealth trustee leader, Tess Page, said: “Our recent survey with the CBI highlighted that employers continue to feel weighed down by the cost of managing DB pension schemes.

“This month’s data reinforces the challenges still faced by many schemes despite positive momentum on the asset side. Inflation remains above the Bank of England target, and implied future inflation is also elevated.

“In a week when focus is rightly on climate change, this is a timely reminder that interest rates and inflation remain top of the risk list for many pension schemes.

“Along with planning their climate change risk strategy, trustees should consider reviewing their approach to hedging assets and liabilities to ensure their strategy remains optimal.”

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. The data underlying the survey is refreshed as companies report their year-end accounts.

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