Mercer reports £7bn dip in DB pension scheme deficit

The accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies fell by £7bn over the course of March, to stand at £69bn at the end of the month.

Mercer’s latest Pensions Risk Survey confirmed this was a decrease from £76bn at the end of February.

According to the latest figures, liabilities fell from £846bn at the end of February to £837bn at the end of March, driven by further rises in corporate bond yields. Asset values were broadly unchanged at £768bn compared to £770bn at the end of February.

However, Mercer highlighted that the month end position does not tell the whole story, and highlighted that over the course of the March the deficit ranged from £57bn to £97bn.

Mercer UK wealth trustee leader, Tess Page, commented: “The first quarter of 2022 has closed out with an overall improvement in accounting deficits since the start of the year – from a deficit of £76bn at the end of December 2021, coincidentally, this was the same as the deficit position at the end of February 2022, to £69bn by the end of March. It was, however, quite a ride with a number of big dips in markets along the way.

“The main driver of the change has been bond yields and their impact on liability values. Q1 2022 has been one of the worst quarters for government bonds in recent memory – but from a pension scheme perspective this generally means ‘good’ news for under-hedged schemes, as liability values dropped dramatically.

“Many trustee boards and sponsors with clear journey plans may now find themselves comfortability on track or even ahead of target, and will be taking advantage of de-risking opportunities.”
Figures used for the monthly Pensions Risk Survey from Mercer relate to around 50% of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the same approach that companies adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts.

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