Mercer’s Pensions Risk Survey data shows that the accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies rose from £133bn at the end of March to £145bn on 28 April 2017. Deficits were volatile over the month ranging from £132bn to £155bn. After the announcement of the UK election and the first round of the French election results there was a slight improvement by £4bn and £7bn, respectively, but deficits finished the month £12bn higher than the start.
At 28 April 2017, asset values were £739bn (compared to the corresponding figure of £739bn at 31 March 2017), and liability values increased by £12bn to £884bn compared to £872bn at the end of March.
“For the first time this year, the deficit exceeded £150bn, however, following the announcement of the snap general election on 18 April there has been a small recovery,” said Ali Tayyebi, Senior Partner at Mercer. “The main change over the month has been a small increase in the market's expectation for long-term inflation which has ticked up again towards its recent high point at the end of January 2017. We also saw liabilities hit £900bn on 12 April, the highest level since Mercer started regular monitoring in 2007."
Le Roy van Zyl, Partner at Mercer, added:, “The deterioration in funding levels over April was a reminder that pension scheme trustees and sponsors face significant uncertainties. Even though some markets showed some weakness, other areas are strong to the point of being at significant risk of suffering a set-back in the near future. Where possible, trustees and sponsors must therefore be selective in identifying which areas they want to de-risk, and which areas of expected return they want to retain. As always, it is important that there is a thorough early discussion between trustees and sponsors to make sure views are aligned, this will allow quick action as soon as an opportunity presents itself.”
Mercer’s data relates to about 50% of all UK pension scheme liabilities and analyses 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. Other measures are also relevant for trustees and employers considering their risk exposure. But data published by the Pensions Regulator and elsewhere tells a similar story.