FTSE 350 Pension Gap Shrinks by £43 Billion in H1

Aggregate deficit falls to £29 billion at the end of May.

The aggregate deficit of the defined benefit pension plans for the UK’s 350 largest publicly traded companies’ fell £43 billion ($56.9 billion) to £29 billion as of June 29, from £34 billion from the end of May, and £72 billion at the beginning of the year, according to consulting firm Mercer.

Mercer said the decrease in the funding gap during the first half of the year was more than three times the decrease registered for all of 2017.  It also expects 2018 to be a record for pension risk transfer due to improved funding levels, attractive pricing in the market, and uncertainty over Brexit driving risk reduction.   

As of June 29, liability values of the FTSE 350 pensions decreased to £818 billion from £857 billion at the end of 2017 due to an increase in corporate bond yields. Meanwhile, the funds’ aggregate asset value was £789 billion as of June 29, up from £785 billion at the end of 2017, which helped raise their funding level to 96% from 92%. 

“The first half of 2018 has seen a modest increase in asset values but the real story of H1 2018 is the huge reduction in deficits so far this year,” Alan Baker, head of DB Solutions at Mercer, said in a release. “This is good news which could be further improved once the latest longevity experience is brought into account. However, market volatility could dramatically reverse these improvements and has done so in the past.”

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

Mercer’s data relates to about 50% of all UK pension liabilities and analyzes pension deficits, which are calculated using the approach companies are required to use for their corporate accounts. The firm estimates the aggregate combined funded ratio based on projections of the companies’ reported financial statements adjusted from each company’s financial year end in line with financial indices.

“At the beginning of the year our expectation had been that 2018 would see schemes reduce risk and consolidate gains and that is proving to be the case,” said Le Roy van Zyl, a partner at Mercer. “With continued uncertainty over the outcome of the Brexit negotiations, there is a clear need for pension scheme trustees and sponsors to be prepared for the fluctuating circumstances.”

Tags: , , , ,

«