Pension funding deficits 40% higher than last year

Pension scheme accounting deficits for FTSE 350 companies have risen 40% since the end of last year, putting pressure on pension managers to fill the funding gap.

The Pensions Risk Survey by consultancy Mercer says the £102 billion (€123 billion) deficit equals a funding level of 85%. This compares to 88% at the end of last year.

Combined assets of pensions fell by £3 billion in November to £563 billion while liability values also fell by £3 billion to £665 billion.

Mercer’s numbers come days after the Pensions Regulator published a series of consultation documents, which include a revised code of practice on defined benefit funding policy.

Adrian Hartshorn, senior partner in the consultancy’s financial strategy group, says understanding and managing of risks through an integrated approach “will require a further evolution of risk management activities for some trustees and sponsors”.

The fall in corporate bond yields, which was largely responsible for the increase in deficits during October, was reversed during November. However, Ali Tayyebi, head of defined benefit risk in the UK, says this did not lead to a material fall in the value of liabilities because the market’s expectation for long-term inflation increased.

Yet again circumstances have “conspired to keep accounting deficits stubbornly high”, says Tayyebi.

“Scheme deficits have remained high since the credit crisis, on both the accounting measure and the funding measure, and this is despite sponsors paying substantial contributions into UK pension schemes over the period,” he says.

“Pension scheme risks can be complex and the absence of a clear set of beliefs or objectives for managing these risks can result in detrimental financial outcomes for scheme sponsors.”

The Mercer data relates to about half of all UK pension scheme liabilities and analyses pension deficits using the approach companies have to adopt for their corporate accounts. Mercer says data published by the Pensions Regulator and elsewhere tells a similar story.

©2013 funds europe

HAVE YOU READ?

THOUGHT LEADERSHIP

The tension between urgency and inaction will continue to influence sustainability discussions in 2024, as reflected in the trends report from S&P Global.
FIND OUT MORE
This white paper outlines key challenges impeding the growth of private markets and explores how technological innovation can provide solutions to unlock access to private market funds for a growing…
DOWNLOAD NOW

CLOUD DATA PLATFORMS

Luxembourg is one of the world’s premiere centres for cross-border distribution of investment funds. Read our special regional coverage, coinciding with the annual ALFI European Asset Management Conference.
READ MORE

PRIVATE MARKETS FUND ADMIN REPORT

Private_Markets_Fund_Admin_Report

LATEST PODCAST