On the go: The UK’s 350 largest listed companies have seen the deficit of their defined benefit pension schemes reach an 18-month high, increasing from £45bn at the end of February to £55bn by the end of March, according to Mercer.
Declining corporate bond yields prompted an increase in liabilities to £847bn from £811bn, only partially offset by a fall in market-implied inflation. Asset values rose to £792bn from £766bn over the period, revealed Mercer’s Pensions Risk Survey.
Maria Johannessen, corporate consulting leader and partner at Mercer, said: “The pension gap has widened for the second consecutive month, despite a £26bn increase in asset values, and has now reached its highest month-end level since October 2017 having doubled over the past year alone.”
She added that a slight drop in medium-term, market-implied inflation to 3.45 per cent was unable to mitigate the decline in corporate bond yields, which resulted in a £36bn increase in liabilities.
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.
Data published elsewhere tell a similar story. PwC’s Skyval Index showed the deficit of DB schemes stood at £260bn at the end of March 2019 – an increase of £60bn from the previous month end. Assets stood at £1.65tn while liabilities stood at £1.9tn based on the gilts-plus method widely used by actuaries.
Steven Dicker, PwC’s chief actuary, said: “A sign of continuing economic uncertainty, the real yields on UK inflation-linked government bonds have reached an all-time low. This makes the challenge of achieving real returns to support inflation-linked pension benefits even more difficult, contributing to this month’s significantly increased deficit.”
PwC’s Skyval Index, based on the Skyval platform used by pension funds, provides an aggregate health check of the UK’s 5,450 corporate DB pension funds.
