FTSE 350 DB pension deficits rise to £73bn

The accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies rose from £70 billion at the end of August 2020 to £73 billion on September 30.

That’s according to the latest data from Mercer’s Pensions Risk Survey.

Liability values rose by £8 billion to £877 billion at the end of September compared with £869 billion at the end of August.

Asset values were £804 billion — a rise of £5 billion.

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.

Charles Cowling, Chief Actuary, Mercer, said: “September was another quiet month for most pension schemes as markets continued to hold up well, whilst inflation continued to decline.

“However, pension schemes are facing a variety of potential risks.

“A second wave of coronavirus is hitting the UK, resulting in further lockdowns and economic pain; the Brexit negotiations appear to be deadlocked raising doubts about an EU trade deal and the outcome of the contentious US Presidential Election could impact markets.

“Finally, the Bank of England seems to be considering the possibility of negative interest rates, with a rate cut of 0.25% potentially adding a further £35bn to pension scheme deficits.

“All this uncertainty creates more risk for pension trustees whilst many employers are going through serious challenges within their own businesses.

“In addition, the Pensions Regulator has just concluded a consultation on the framework for the regulation of pension schemes which could encourage trustees to target more prudent long term funding objectives, adding further strain on already stretched finances.”

Maria Johannessen, Partner and Corporate Consulting Leader at Mercer said: “With all this systemic risk in the economy corporates and trustees are urged to monitor carefully and be ready to seize opportunities to manage risk.

“Now may be a good time for trustees to consider a move to contractual cash flow matching investments.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.