DB pension deficit drops in February

The accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies fell by £4bn during February, to stand at £76bn at the end of the month.

Mercer’s latest Pensions Risk Survey confirmed this was a decrease from £80bn at the end of January.

Data showed that liabilities fell from £879bn at the end of January to £846bn at the end of February, as increases in market expectations of inflation were offset by a fall in corporate bond yields.

Asset values also fell to £770bn compared to £799bn at the end of January, leading to the fall in deficits.

Mercer UK wealth trustee leader, Tess Page, commented: “The tragic situation in Ukraine is quite rightly at the top of the news agenda. Any comment will be out of date quickly as the situation is very fluid, but in the short-term the conflict has not had a significant impact on the figures we see here for February.

“It is too soon to know what the longer term economic impacts will be. However, it seems likely that they will include higher energy prices, further disruptions to supply chains, market volatility and liquidity pressures.

“Whilst UK DB pension schemes typically have very low direct exposure to Russia, it is the wider market fall-out that will test integrated risk management plans. As ever Trustees who have taken steps to understand and control their risk exposures should be better placed.”

Figures used for 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 approach that companies adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts.

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