Pensions - Articles - FTSE 350 pension deficit rises over month amidst COVID19

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 increased from £52bn at the end of April 2020 to £72bn on 29 May. Liability values rose by £36bn to £933bn at the end of May compared with £897bn at the end of April. Asset values were £861bn (an increase of £16bn compared to the corresponding figure of £845bn at the end of April).

 Charles Cowling, Chief Actuary, Mercer, said: “Pension deficits, as measured by accounting rules for company accounts, have worsened in the last month and compared to 12 months ago, as market turmoil continues to affect pension schemes. CPI inflation dropped this month down to just 0.9% due to the impact of lower oil and energy prices. The governor of the Bank of England has given a strong indication that the UK may soon be facing negative interest rates. He stated that officials were actively considering all options to help see the economy through a deep recession. 

 “Now more than ever, trustees need to understand the challenges facing businesses and the level of cash contributions that employers can truly afford. With risks seemingly growing in every direction, now is the time trustees should particularly look to reduce investment risk. Those that have been holding back from fully hedging interest and inflation risks should consider taking advantage of market opportunities and further reduce risk wherever possible.”

 Mercer’s Pensions Risk Survey data relates to about 50% of all UK pension scheme liabilities, with analysis focused on 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. Data published by the Pensions Regulator and elsewhere tells a similar story.

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