The defined benefit (DB) pension deficit of the UK’s 350 largest listed companies increased by £10bn in August to hit £83bn, Mercer figures have revealed.
At the end of July, the defined benefit pension schemes of the FTSE 350 companies were £71bn in deficit.
Total assets under management increased by £15bn over the month to reach £772bn.
Liabilities, however, rose by £27bn to £855bn last month.
According to Ali Tayyebi, senior partner at Mercer, August saw the largest monthly increase in deficits so far this year.
He said: “This was largely driven by a reduction in corporate bond yields, which together with a small increase in market expectations for long-term inflation, meant that liability values increased by over 3 per cent in just one month.”
Le Roy van Zyl, a strategic adviser and partner at Mercer, said that despite the increase in the deficit, these numbers, however, are “still far off the painful numbers we saw a year ago in the aftermath of the European Union referendum”.
In September 2016, the FTSE 350 companies DB deficit hit a record high of £189bn.
Mr van Zyl said: “With the Brexit negotiations now underway in earnest, there is considerable scope for people’s expectations to be frustrated, and the setback above may well be partly due to the general uncertainty.
“A range of outcomes are possible and it is key that schemes work through some scenarios to establish whether there are material dangers under any of them to the scheme. If there are, they need to work together to identify and put in place pragmatic mitigating measures”.
Steve Carlson, chartered financial planner at Cardiff-based Carlson Wealth Management, said that “FTSE 350 companies have already taken action to reduce their long-term deficits.
This has been done through a combination of reducing the pension entitlement that current workers are building up, while increasing both employee’s contributions and the age at which they receive their pension, he said.
Mr Carlson said: “Minor increases in these deficits as bond yields fall are to be expected, but it is important to remember that any increase in bond yields could see pension deficits reduce."
Last week, PWC revealed that the total deficit of all the defined benefit pension funds in the UK stood at £460bn at the end of August, an increase of £40bn since last month.
maria.espadinha@ft.com
