The defined benefit pension deficit of the UK’s 350 largest listed companies increased by £50bn in August to hit a record high of £189bn, figures released by Mercer had revealed.
At the end of July, the DB pension schemes of the FTSE 350 companies were £139bn in deficit.
On the 31 August, that figure had skyrocketed to £189bn, according to Mercer.
Total assets under management increased by £20bn over the month to reach £737bn.
Thanks to plummeting gilt and corporate bond yields, however, liabilities increased by £70bn to £926bn.
Mercer reported both the deficit and liabilities of FTSE 350 companies were now at the highest they had ever been since Mercer began measuring them.
“Despite an increase in asset values over the month, August saw the biggest monthly rise in deficits since records began,” said Ali Tayyebi, senior partner in Mercer’s Retirement business.
“This was largely driven by a further sharp fall in long-dated corporate bond yields. This also means that our reference long-dated corporate bond yield has now fallen below 2 per cent per annum for the first time representing yet another milestone into uncharted territory.”
Le Roy van Zyl, senior consultant at Mercer’s Financial Strategy Group, said the “seemingly relentless march in pension scheme deficit increases” would “have to be dealt with”.
“The first key question to address is how much deficit contributions should the sponsor be paying, recognising the security needs of the pension scheme as well as the appropriate alternative uses for this cash,” he said.
“Another key question is how much risk should currently be run; on the one hand, can the scheme and sponsor afford conditions to deteriorate further, but on the other; what is the opportunity cost if risk is reduced now and markets improve from here on out?”
Mr van Zyl said “letting things drift” was as dangerous an approach as taking rushed action.
Last week, JLT Employee Benefits revealed that just 11 companies in the FTSE 250 companies - the smaller cohort in the FTSE 350 - were contributing more than 5 per cent of employee benefits to DB schemes.
The firm predicted accrual would “almost completely” stop by the end of 2016.
On Friday (2 September), retail giant Marks & Spencer told active members of its defined benefit scheme that they will no longer be able to accrue addtitional benefits from April 2017.
james.fernyhough@ft.com
