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FTSE 350 pension scheme deficits reach 12-month high

Wednesday, May 7, 2014

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UK pension scheme deficits reached a 12-month high of £111bn in April, according to research from Mercer.

The FTSE 350 pension scheme deficits increased by £9bn from £102bn at 31 March 2014, and exceed the previous high-point of £108bn in April 2013.

Mercer said that the increased deficit occurred despite a rise £4bn rise in asset values over the month.

The funding ratio decreased by 1% to 84% as a result of a fall in corporate bond yields and a rise in market expectations for long-term inflation.

Ali Tayyebi, Mercer's Retirement Business senior partner, said: "It is disappointing that despite more than a 3% increase in the FTSE 100 over April, pension scheme deficits still increased so significantly."

He said that the "driving factor" for the increased deficits was a £13bn increase in liability values to £686bn over April, which resulted from a small reduction in long-dated corporate bond yields, combined with a small increase in the market's expectation for long-term inflation.

Tayyebi added that the three key drivers of the pension scheme deficit on the balance sheet, namely corporate bond yields, market implied inflation and the FTSE 100 index, have all individually been at unfavourable levels over the last 12 months.

"This is a sobering thought for those inclined to assume that financial conditions are bound to get better and might therefore be deferring risk management or deficit correction actions on that basis," said Tayyebi.

According to the most recent statistics from the Office for National Statistics, UK companies contributed £63bn to UK pension schemes in 2010, up from £25bn in 2000, and it is likely that there have been further increases since 2010, Mercer said.

Tayyebi said: "It is clear that despite this increase in contributions funding levels are not improving.

"Companies and trustees need to explore other ways of controlling costs, managing risk and discharging liabilities. Companies that execute this efficiently will put themselves at a competitive advantage."

First published 07.05.2014

monique_simpson@wilmington.co.uk