Pensions - Articles - FTSE350 pension deficits increase as stock markets fall

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 £57bn at the end of January 2020 to £68bn on 28 February. Liability values fell slightly by £2bn to £914bn compared to £916bn at the end of January.

 Asset values were £846bn (a fall of £13bn compared to the corresponding figure of £859bn at the end of January). Over the month the deficit was as high as £80bn as liability values have fluctuated.

 Charles Cowling, Partner at Mercer, said: “Funding positions have declined this month as the impact of the coronavirus has sent shock waves through global markets. The outbreak is causing major disruption to international trade and supply chains, particularly in China, with the impact quickly spreading across Europe. The UK economy is expected to be hit imminently – giving the Chancellor of the Exchequer a tough first Budget in a few weeks.

 “The outbreak will also have an unwelcome impact on interest rates. The outgoing governor of the Bank of England, said last week that a slowdown in our economy caused by coronavirus must raise the likelihood of a cut in interest rates. Some industries are already being hit hard by coronavirus and for many companies it is going to have a significant impact on financial results. Trustees must be alert to the impact that coronavirus is having on the strength of many sponsoring employers.”

 Mr Cowling added: “To add to these challenging conditions the Continuous Mortality Investigation has announced that last year saw the highest reduction in mortality rates since 2011. It is too early to tell whether this is a blip or a new trend, and how it might be affected by coronavirus, but it is likely to put pressure on pension liabilities. With asset values falling and pension liabilities increasing, 2020 may be a difficult year for actuarial valuations and trustees would be well advised to start their planning early.”

 Mercer’s Pensions Risk Survey 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.

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