FTSE350 pension deficit has narrowed significantly in the first quarter of this year, according to data from consultancy Mercer.
In its pensions risk survey published yesterday (4 April) the firm pointed to a £4bn fall in the deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies.
The deficit had already fallen £8bn in 2017 and now stands at £72bn at a funding level of 91 per cent, according to Mercer.
A reduction of pension scheme liabilities was achieved as a result of rising corporate bond yields, which outweighed a fall in asset valuations, Mercer said.
Liabilities reduced by £19bn to £838bn, while asset valuations fell by £15bn to £766bn in the first three months of 2018, Mercer stated.
Alan Baker, partner and chair of Mercer’s DB policy group, said: “2018 has already delivered a meaningful reduction in the pensions gap, which frees up money to either be invested in growth or returned directly to investors.
“However, the continuing decline of asset valuations serves as an important reminder of the very real risks facing pension schemes.
“Trustees and sponsors must actively monitor and mitigate the risks they’re running, to ensure their exposure is in line with their risk appetite.”
Mercer estimates the combined funded ratio of plans operated by FTSE350 companies on a monthly basis.
It analyses pension deficits 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.
Le Roy van Zyl, partner and strategy adviser, said: “The quarter saw very significant asset and liability swings, with recent declining asset valuations creating cause for concern.
“In response, we continue to see schemes opting for strategies that protect themselves from the most adverse outcomes, whilst retaining some upside potential.
“Experience is also emphasising the need to be able to react quickly to opportunities that may well be short lived.”
carmen.reichman@ft.com
