FTSE 350 DB accounting deficits hit a record high last month as uncertainty over Brexit and US elections created pressure on corporate bond yields says Mercer.
The consultancy says FTSE350 DB deficits increased by 6.5 per cent last month as high quality corporate bond yields fell, rising from £92bn on 29 April 2016 to £98bn at the end of May. Asset values stood at £663bn at the end of May, representing a rise of £8bn compared to the £655bn figure for 29 April, according to figures from Mercer. Liability values stood at £761bn, representing an increase of £14bn compared to £747bn at the end of April.
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. The data underlying the survey is refreshed as companies report their year-end accounts.
Mercer senior partner, retirement business Ali Tayyebi says: “The steady fall in high quality corporate bond yields since February continued during May. This pushed up the combined liability values to their highest level since we started the survey in 2007 and meant that the deficit increased again during May despite a positive month for asset values.
“It also meant that the combined deficit value has now doubled over the three month period since the end of February,” added Mr Tayyebi.
Mercer financial strategy group principal Le Roy van Zyl says: “May has been another volatile month in the financial position of pension schemes, with no reason to believe that things will quieten down in the months to come, with the Brexit referendum and approaching US elections just being two examples of market pressures. It is easy to forget that volatility also creates opportunities, but that these will be wasted if pension scheme trustees and sponsors are not ready to quickly take advantage of them. This could range from locking in some of the good news that may come from equity markets and/or interest rates, all the way to proceeding with previously delayed risk transfer to insurers.”