UK FTSE 350 pension deficit increases sharply following Brexit

The aggregate defined benefit pension deficit of FTSE 350 companies fell sharply following the UK’s departure from the European Union on 31 January.

Mercer’s latest Pensions Risk Survey shows that the accounting deficit of DB pension schemes for the UK’s 350 largest listed companies increased from £40bn at the end of December 2019 to £57bn on 31 January.

Liability values increased by £34bn to £916bn compared to £882bn at the end of December. The increase was primarily driven by falls in corporate bond yields. Asset values were £859bn (an increase of £17bn compared to the corresponding figure of £842bn at the end of 2019).

Commenting, Mercer partner, Charles Cowling, said: “Although funding positions have deteriorated this month, there are reasons to be optimistic about the outlook for pension schemes. The Bank of England just announced that it will not reduce interest rates this month due to signs that the economy is picking up.

“The IMF expects the UK to be the fastest-growing European economy this year and the CBI’s latest quarterly manufacturing confidence survey showed the biggest three-month jump in confidence since 1958. In addition, ‘Brexit day’ may also remove an important market uncertainty.”

Despite this, he said there are reasons to remain cautious, quoting outgoing Bank of England governor, Mark Carney, who said “evidence of a pick-up in growth is not yet widespread”.

“Many schemes are reducing interest rate and inflation risks, and even reducing longevity and equity market risks down to minimal levels. This is good news. But we shouldn’t be complacent, there are still many potential pitfalls ahead. Trustees should be alert to market opportunities to take risk off the table.”

Mercer’s Pensions Risk Survey data relates to about 50 per cent of all UK pension scheme liabilities and analyses pension deficits calculated using the approach companies have to adopt for their corporate accounts.

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