The accounting deficit of defined benefit (DB) pension schemes for the UK’s largest 350 companies has increased over March from £116bn at 27 February 2015 to £127bn at 31 March 2015, according to Mercer’s Pension Risk Survey.
The funding level fell slightly from 84 percent to 83 percent, with the deterioration being driven by an increase in liability values. This was the result of a fall in corporate bond yields and some deterioration in equity markets over the month.
Ali Tayyebi, senior partner in Mercer’s Retirement business, said:
“Bond yields fell back again in March reversing some of the rise in yields seen during February which had provided what seems like a rare period of good news at that time.
“This means deficits have increased to near their record high, and the timing will be particularly unwelcome for those companies with accounting periods ending on 31st March. The increasing size of pension liabilities is also highlighted by the fact that the funding levels were at 83 percent a couple of years ago, the monetary value of the deficit would have been £108bn – now an 83 percent funding level equates to a deficit of £127bn, almost a 20 percent increase.”
At 31 March 2015, asset values were £629bn (representing an increase of £7bn compared to the corresponding figure of £622bn as at 27 February 2015), and liability values were £756bn (representing an increase of £18bn compared to the corresponding figure of £738bn at 27 February 2015).
“Although our figures monitor the deficit on the basis used for reporting pension deficits in company accounts, the picture will be similar on the funding bases which are typically agreed between trustees and employers for setting deficit contributions to the pension scheme,” added Mr. Tayyebi.
Mercer’s data relates to about 50 percent 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.