FTSE 350 deficit up to £51bn as political and financial turmoil ahead

Liabilities increased by £24bn to £884bn during the period due to a 0.16 per cent decline in corporate bond yields, only slightly offset by a 0.02 per cent fall in market-implied inflation. Asset values stood at £833bn, a £21bn increase from £812bn at the end of June.

Maria Johannessen, partner at Mercer, said: “We are seeing a continuation of the see-sawing we’ve experienced over the last couple of months. This fluctuation is due to, among other reasons, increasing political and financial market uncertainty. Depending on planned activities, it may well be important for stakeholders to carefully manage risk and shield themselves from market movements, particularly in the lead up to October 31."

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.

Charles Cowling, actuary at Mercer, added: “July’s increase in deficit can be partly attributed to recent political developments, including the election of Boris Johnson as prime minister and preparations for a no-deal Brexit, which are causing increased market volatility, particularly in currency markets. A fall in the value of sterling has the potential to create a spike in inflation and now there is also an increasing likelihood of an interest rate cut by the Bank of England following the Federal Reserve’s recent decision.”

He warned: “Taken together with the possibility of a no-deal Brexit, the combination of political and financial volatility could result in a precarious perfect storm for trustees and pension schemes in the autumn. Trustees should therefore urgently evaluate the potential impact of political and economic uncertainty on their sponsors and pension schemes and be in a position to capitalise on de-risking opportunities as they arise.”