Deficits of pension schemes of the UK’s 350 largest listed companies spiked from £39 billion at the end of 2015 to £137 billion on 30 December 2016, the latest Mercer’s Pensions Risk Survey data shows.
The consultancy said that over the past month alone the accounting deficit of defined benefit (DB) pension schemes for FTSE350 companies went up by £10 billion, from £127 billion at the end of November to £137 billion at the end of December.
Commenting on the rising deficit, UK DB Risk Leader for Mercer, Alan Baker, said: ‘[Increasing pension deficits] continues to put real pressure on any risk management plans and will require trustees and corporate sponsors to work closely together to establish the right framework to monitor and manage those risks.’
At the end of last year, asset values of FTSE350 pension schemes stood at £720 billion, which represented an increase of £19 billion on the month.
However, pension deficit contributions and positive asset returns have been offset by the fall in corporate bond yields and rise in inflation expectations, which increased liability values by £29 billion on the month, to £857 billion.
In comparison, at the end of 2015 FTSE350 pension funds’ assets were worth £634 billion, whereas their liabilities’ value equalled £673 billion.
Mercer Senior Consultant, Le Roy van Zyl, said that in the current environment, best outcomes would be achieved by tackling covenant, funding and risk management together.
‘It will be especially important to focus on future cashflow requirements in different scenarios,’ he said.
Mercer’s data relates to about 50% 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.
A study from JLT, another consultancy, showed that among the pension funds of FTSE100 companies, only 29 schemes registered a pension surplus in their most recent annual report, while 59 companies had pension deficits.
However, in the past 12 months, the total disclosed pension liabilities of the FTSE 100 companies have fallen from £615 billion to £584 billion.