FTSE 350 Pension Deficits Rise £12 Billion in August

Mercer says decline may be due to uncertainty over Brexit negotiations.

The accounting deficit of defined benefit pension plans for the UK’s 350 largest listed companies increased to £83 billion at the end of August, from £71 billion at the end of July, according to data from Mercer’s Pensions Risk Survey.

Liability values increased by £27 billion to £855 billion as of Aug. 31, compared to £828 billion at the end of July. Asset values were £772 billion, a £15 billion increase from the end of July.

“Unfortunately, the run of good news ended over August, with the deficits increasing again materially,” said Le Roy van Zyl, a strategic advisor and partner at Mercer, “albeit still far off the painful numbers we saw a year ago in the aftermath of the EU referendum.” 

Mercer said that the recent setback could be partly due to the general uncertainty surrounding the country’s Brexit negotiations currently underway with the EU.

“Pension scheme trustees and sponsors will need 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,” said Mercer. “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.”

Mercer’s data relates to about 50% of all UK pension plan liabilities, and analyzes pension deficits using the approach companies have to adopt for their corporate accounts. The company said the data underlying the survey is refreshed as companies report their year-end accounts. Mercer’s estimates are based on projections of the reported financial statements of FTSE 350 companies adjusted from each company’s financial year end in line with financial indices.

The estimated aggregate value of pension plan assets of the FTSE 350 companies at the end of 2016 was £737 billion, compared with estimated aggregate liabilities of £821 billion.

A recent report from JLT Employee Benefits found that the total assets for all UK private sector defined benefit pension plans as of the end of August were £1.606 trillion, a £36 billion increase from the £1.57 trillion reported at the end of July. It also reported that the liabilities of all UK private sector plans grew by £52 billion to £1.805 trillion from £1.753 trillion during that same time.

Tags: , , , ,