FTSE 350 pension schemes have seen a reduction in funds between May and June 2023, despite remaining in surplus, Mercer has found.

The professional services firm has reported in its Pensions Risk Survey data analysis that the accounting surplus of defined benefit (DB) pension schemes for the UK’s largest 350 companies have taken a hit, falling from £69bn in surplus at the end of May 2023, to £49bn at the end of June.

Furthermore, the present value of liabilities increased from £550bn on 31 May to £578bn at the end of June. This has been put down to a fall in bond yields in this time and an increase in market inflation expectations.

Despite this, Mercer reports that most schemes are in a much better funding position than they may have expected 12 months ago.

The data collected by Mercer covers about 50% of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach companies have to adopt for their corporate accounts.

Mercer’s UK funding consulting leader, Leanne Johnston, said: “Even with the aggregate position falling back, the vast majority of FTSE 350 pension schemes are in a much better position than they might have expected to be just 12 months ago.

“Many are now well-funded, not just on an accounting basis but also against their long-term funding targets or even against the cost of buyout.

“Nevertheless, the movement in position over the last month demonstrates the uncertainty and risks that are still present.”

With these results in mind, Johnston said that trustees and employers may want to consider taking action to protect their position and to help with achieving their long-term goals.

“There is a range of end game options trustees and employers may consider. For some, buyout is appropriate whereas for others, it may be that a more flexible approach is preferable.

“It is important that any option is considered with a scheme’s long-term goals in mind.”

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