The defined benefit (DB) pension scheme accounting deficits for FTSE350 companies were £108bn at 30 April 2013, which corresponds to a funding ratio of 84%, according to data published by Mercer.
Mercer's Pensions Risk Survey revealed that over the month, pension deficits increased by £19bn from £89bn at 31 March 2013, which had a funding ratio of 86%.
Mercer said that although the equity markets recovered quickly from the falls in early April, the fall in high quality corporate bond yields increased liability values to levels not seen since March 2007.
Asset values increased from £552bn at 31 March 2013 to £557bn at 30 April 2013, however the total liabilities increased in value from £641bn at 31 March 2013 to £665bn at 30 April 2013.
"The equity markets recovered well from their dip early in the month and asset values increased by around £5bn over April. It will therefore be a surprise and disappointment to many that both liability values and deficits still managed to reach highs not seen for several years," said Ali Tayyebi, Mercer head of DB Risk in the UK.
He added: "The environment is proving particularly frustrating for many schemes who will have experienced significant improvements in their asset values but who feel that de-risking into gilts does not look particularly attractive at current prices."
Adrian Hartshorn, senior partner in Mercer's Financial Strategy Group, suggested that corporate sponsors of DB schemes and trustees should consider a wider range of assets to generate return, since there is continued low yield on UK Government bonds.
He said: "It is important to consider the income, risk and return characteristics of the alternative range of assets to ensure the portfolio is structured to meet the investment objectives for the scheme.
"At the same time sponsors and trustees should consider alternative cost effective ways to manage risk. This might include, for example longevity swaps, liability management exercises or the use of contingent asset structures to support scheme funding."
First published 13.05.2013
monique_simpson@wilmington.co.uk
