New high for DB scheme deficits

October’s market volatility pushed FTSE350 pension scheme liabilities above £700bn for the first time ever,

The fall in long-dated bond yields to new lows in the first half of the month saw FTSE350 pension scheme deficits stand at £87bn, a funding ratio of 87 per cent, according to Mercer’s pensions risk survey data. FTSE350 DB pension schemes liabilities stood at £702bn during October.

Overall asset values remained stable throughout the month, with a dip of nearly 7 per cent in the UK equity markets in the first two weeks of the month balanced as falling bond yields buoyed the value of bond assets. The reduction in AA bond yields observed in the first part of October was driven at least partly by lower Government bond yields, says Mercer, resulting from lower levels of liquidity in the middle of the month.

Mercer retirement business senior partner Ali Tayyebi says: “It has been one of the more volatile months for pension scheme funding levels. Deficits increased by £24bn in the first half of the month only to fall back by virtually the same amount over the second half.

“This is a stark reminder that volatility has not gone away and that companies and trustees should have an active plan to manage the associated risks in a measured way against their clear long term objectives.”