Charles Cowling, Chief Actuary at Mercer, said: “Spring is in the air and with the warmer weather, gradual lifting of restrictions and good progress being made on vaccinations, a sense of optimism abounds. This is reflected in recent forecasts for the UK economy which show an improvement in expected growth prospects for 2021 and 2022. Markets are holding up well despite last month’s budget from Chancellor Rishi Sunak highlighting the huge scale of Government borrowing in response to COVID-19. This level of Government debt is going to have to be managed, but with interest rates so low, the cost of servicing this debt is not causing any immediate headaches. In spite of the economic shocks of the last 12 months, pension scheme funding levels remain stable. However, trustees and companies should not become complacent.
There are fears that inflation will rise again as governments around the world pump billions of pounds of stimulus into the global economy. There are also worries that as we emerge from lockdown, and furlough and mortgage interest support is eventually eliminated, the scale of the problems facing many businesses and individuals will become apparent. The likelihood is that even if the economy makes a full recovery from the pandemic, it has irrevocably changed some parts of the economy. Pension trustees should consider taking opportunities to reduce risk when and where 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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