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Pension scheme deficits end May unchanged but with huge volatility during the month


The accounting deficit of defined benefit pension schemes for the UK’s largest 350 listed companies largely remained unchanged at end-May (GBP93bn) versus that at end-April (GBP95bn) and still higher than at the year-end (GBP75bn).

That’s according to data from Mercer’s latest Penisons Risk Survey, which reveals that as at 29 May 2015, asset values were GBP641bn (representing an increase of GBP3bn compared to the corresponding figure of GBP638bn as at 30 April 2015), and liability values were GBP734bn (representing an increase of GBP1bn compared to the corresponding figure of GBP733bn at 30 April 2015).
“The small improvement in deficits during April was largely driven by an increase in corporate bond yields although even this was substantially offset by an increase in market implied inflation. The result of the General Election also appears to have had little overall impact on the funding position by the end of the month. The apparent stability in deficits over the last three month-ends might provide some comfort compared to some of the bigger fluctuations seen in earlier months but it is very cold comfort when this stability is around such historically high levels” says Ali Tayyebi, Senior Partner in Mercer’s Retirement business.
Le Roy van Zyl from Mercer’s Financial Strategy Group, says: “Even though the deficit remained largely unchanged from month-end to month-end, the material volatility during the month is very significant. Looking back over the past year, we see that deficits have been as high as c. GBP100bn, and as low as c.GBP70bn. Scheme sponsors and trustees with a prepared and robust process to take advantage of the opportunities and threats that arise will therefore be much better able to deal with the pension issues. In this, it is important to recognise that a number of risk and cost management steps can be taken while one waits for investment markets to become more favourable. Key steps here include longevity hedging and providing scheme members with greater choice with regard to their benefits.”
Mercer’s data relates to about 50 per cent 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. Other measures are also relevant for trustees and employers considering their risk exposure. But data published by the Pensions Regulator and elsewhere tells a similar story.

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