On the go: The pension funding surplus of the UK’s biggest 350 listed companies fell last month amid choppy markets and falling bond yields.
Over the course of July, the accounting surplus of the FTSE 350’s defined benefit schemes dropped to £2bn from £11bn, according to Mercer’s latest Pensions Risk Survey.
It comes as the value of liabilities rose to £709bn at the end of July from £667bn at the end of June 2022, which was mostly down to falls in corporate bond yields and an increase in the market’s expectation of future inflation.
The increase in liabilities values was partially offset by a rise in asset values to £711bn at the end of July from £678bn at the end of June.
The funding level of the FTSE 350 schemes has been gradually improving in recent months as a result of higher bond yields, after record numbers of schemes were in surplus at the end of 2021.
At the beginning of July, Mercer had reported that the FTSE 350 schemes had moved into surplus funding position for the first time since 2018, with the £4bn deficit switching into an £11bn surplus over the month.
Mercer principal Matt Smith said the reduction in surplus is a “timely reminder” for trustees and corporate sponsors looking for opportunities to lock in funding gains. He warned that “markets remain volatile” and “if you blink there is always the chance you might miss it”.
Last week, the Department for Work and Pensions issued its consultation on funding regulations, which includes a proposal for schemes to have their long-term plans set out in a funding and investment strategy.
Smith said these proposed regulations could “significantly change” long-term funding objectives and will “increase the focus” on journey planning.
“With funding positions currently strong, employers may wish to strengthen their engagement with trustees on potential opportunities and consider the end game for their schemes,” he added.
