FTSE 350 pension deficit slips from July peak

The accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies fell from £103bn at the end of July, to £82bn on 28 August, according to Mercer’s latest Pensions Risk Survey.

Data showed that liability values fell by £30bn to £940bn at the end of August, having sat at £970bn at the end of July.

Mercer also revealed that asset values were £858bn at the end of August, reflecting a fall of £9bn compared to £867bn at the end of July.

The Pensions Risk Survey data relates to about 50% of all UK pension scheme liabilities, with Mercer’s analysis focused on pension deficits calculated via the approach that companies adopt for their corporate accounts.
Mercer chief actuary, Charles Cowling, described August as a “quiet month” for most pension schemes, and suggested markets had held up well while long-term inflation worries eased.

“The Bank of England held interest rates steady at record low levels as the economy and markets struggle to shrug off the uncertainty caused by the pandemic,” Cowling commented.

“The Bank now expects the UK economy to shrink by 9.5% this year, the biggest annual decline in a century. Unemployment is also expected almost to double by the end of 2020 as the furlough scheme comes to an end.
“However, the Bank’s latest forecasts also assume that there is no COVID-19 second wave and that the UK achieves a post-Brexit trade agreement with the EU by year-end. Both of these are far from certain.

“Across Europe and globally, coronavirus case numbers are escalating sharply. In the absence of a vaccine emerging, any further easing of lockdown measures seems unlikely especially as September will see students returning to schools and universities in the UK.”

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