The accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies saw a marginal increase to £31bn at the end of November, new data from Mercer has shown.

This was up from the £29bn reported by Mercer in October.

According to Mercer’s latest Pensions Risk Survey, the present value of liabilities increased from £600bn at 31 October 2022 to £627bn at the end of November. This was driven by a fall in corporate bond yields, offset to an extent by falling future implied inflation expectations.

Figures used in the monthly Pensions Risk Survey from Mercer relate to around 50% of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the same approach that firms adopt for their corporate accounts. The data underlying Mercer’s survey is refreshed as companies report their year-end accounts.

The latest figures also showed that assets outperformed the liabilities by rising over the period to £658bn, up from £629bn at the end of October.

“The aggregate funding position on an accounting basis appears to have stabilised following the aftermath of the events at the end of September, with a surplus of £31bn at the end of November,” commented principal at Mercer, Matt Smith.

He also highlighted that November saw the release of the Chancellor’s Autumn Statement, which focused on tax increases and spending cuts designed to shore up public finances and reassure markets.

“In contrast to the former Chancellor’s ‘growth plan’ in September, the Autumn Statement looks to have had little impact on UK gilt markets, implying some level of confidence in the government’s new fiscal policy but also highlighting the stark contrast in the handling of the two events and the market’s reaction to them,” he said.
 
“However, many pension schemes are likely to be working through the next steps in relation to both their investment strategy and their broader funding plans. Next steps will include consideration of The Pensions Regulator’s statement of 30 November 2022 on LDI which reinforced the need for sensible collateral and liquidity management.”
 
Smith added: “The Pensions Regulator’s recent statement confirms the need for increased focus and tolerances on LDI, as well as strong governance, but pleasingly they have retained a flexible framework for schemes to work through sensibly.
 
“For pension schemes, this provides a focus for ongoing discussions around risk management.”

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