FTSE 350 pension deficit up as lockdown eases

The accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased to £103bn on 31 July, up from £90bn at the end of June, according to new data from Mercer’s Pensions Risk Survey.

Mercer also revealed that liability values saw a rise of £13bn to £970bn at the end of July, in comparison to £957bn at the end of June. The data showed that asset values were £867bn during the month, a figure unchanged since the end of June.

The Pensions Risk Survey data relates to about 50% of all UK pension scheme liabilities, with Mercer’s analysis focused on pension deficits calculated using the approach that companies have to adopt for their corporate accounts.
Mercer chief actuary, Charles Cowling, commented: “Pension scheme deficits worsened again in the last month and compared to 12 months ago, as market turmoil continues.

“We may have reached the limit of the easing of lockdown measures ahead of any vaccine for coronavirus becoming available, and globally the outlook remains bleak with coronavirus cases increasing.”

Cowling also suggested that many sectors in the UK are still operating in “crisis mode” and highlighted that some experts have predicted it will be 2024 before the UK economy returns to normal.

“Meanwhile, the economy is expected to shrink by over 10% this year due to the winding down of the furlough programme and unemployment could get close to 10% by year end,” he added.

“These are testing times for trustees who, more than ever, need to understand the financial challenges facing sponsoring employers. Focus will be on the Bank of England this week as it meets to review interest rates.

“Although a change to base rates is unlikely, it seems that markets are already pricing in a cut to negative rates and the Bank is expected to publish a report on the prospect of negative rates. Now is not the time for pension trustees to be increasing investment risk. Rather, where possible, trustees should consider reducing risk, taking market opportunities to increase hedging programmes and contemplate lower risk contractual cash flow matching investments.”

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