The accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies rose slightly to £73bn at the end of September, new data from Mercer has revealed.

Mercer’s latest Pensions Risk Survey showed this was up marginally from the £70bn recorded at the end of August.

Liability values saw an £8bn increase to £877bn at the end of September, while asset values were at £804bn, having also risen by £5bn since the end of August.

The data for Mercer’s Pensions Risk Survey relates to around 50% of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach that companies adopt for their corporate accounts.

“September was another quiet month for most pension schemes as markets continued to hold up well, whilst inflation continued to decline,” commented Mercer chief actuary, Charles Cowling. “However, pension schemes are facing a variety of potential risks.

“A second wave of coronavirus is hitting the UK, resulting in further lockdowns and economic pain; the Brexit negotiations appear to be deadlocked raising doubts about an EU trade deal and the outcome of the contentious US Presidential Election could impact markets. Finally, the Bank of England seems to be considering the possibility of negative interest rates, with a rate cut of 0.25% potentially adding a further £35bn to pension scheme deficits.

“All this uncertainty creates more risk for pension trustees whilst many employers are going through serious challenges within their own businesses.”

Mercer partner and corporate consulting leader, Maria Johannessen, added: “With all this systemic risk in the economy corporates and trustees are urged to monitor carefully and be ready to seize opportunities to manage risk. Now may be a good time for trustees to consider a move to contractual cash flow matching investments.”

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