The deficit of FTSE 350 companies defined benefit (DB) pension schemes has more than halved in the first six months of the year, according to data from Mercer.
The consultant's analysis showed the pension gap decreasing from £72bn at the start of 2018 to £29bn at the end of June.
The deficit fall is more than three times the decrease for the whole of 2017, Mercer said.
At 29 June, FTSE 350 companies saw its pension liability drop by £39bn to £818bn, when compared withthe end of 2017, due to an increase in corporate bond yields.
Asset values were £789bn, an increase of £4bn in relation to the end of last year.
The quoted funding level improved from 92 per cent to 96 per cent.
According to Alan Baker, head of defined benefit solutions and partner at Mercer, the first half of 2018 has seen a modest increase in asset values, but the real story is “the huge reduction in deficits so far this year”.
He said: “This is good news which could be further improved once the latest longevity experience is brought into account.
“However, market volatility could dramatically reverse these improvements and has done so in the past. Trustees who run schemes need to continue to be prudent and ask themselves how much risk they really need to take to meet their funding requirements.”
According to Schroders, the current bull market will become the longest in history but will come to an end in 2020.
Le Roy van Zyl, a strategic adviser and partner at Mercer, argued the expectation at the beginning of the year was that schemes would be able to “reduce risk and consolidate gains and that is proving to be the case”.
He said: “With continued uncertainty over the outcome of the Brexit negotiations, there is a clear need for pension scheme trustees and sponsors to be prepared for the fluctuating circumstances, not only in terms of scheme finances and risk, but also around the challenges of making effective decisions against this uncertain backdrop.”
maria.espadinha@ft.com
