FTSE 350 DB pension scheme deficit falls back to surplus £2bn

The accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies decreased by £9bn during July, according to the latest Pensions Risk Survey from Mercer.

The latest deficit now stands at a total surplus of £2bn, falling from £11bn at the end of June.

Mercer’s data indicated that liabilities increased from £667bn as of 30 June to £709bn at the end of July, driven by falls in corporate bond yields as well as a rise in the market’s view of future inflation.

Asset values also climbed over the period to £711bn compared to £678bn at the end of June, which helped to offset the increase seen in the liabilities.

Principal at Mercer, Matt Smith, commented: “The month-end aggregate funding position on an accounting basis is expected to continue to be showing a surplus, despite bond yields falling. The reduction in surplus is a timely reminder, for trustees and corporate sponsors looking for opportunities to lock in funding gains, that markets remain volatile and if you blink there is always the chance you might miss it.”

Smith also highlighted last week’s consultation from the Department of Work and Pensions on funding regulations, with a proposal for pension schemes to have their long-term plans set out in a funding and investment strategy.

“The proposed regulations could significantly change long term funding objectives and will increase the focus on journey planning. With funding positions currently strong, employers may wish to strengthen their engagement with trustees on potential opportunities and consider the end game for their schemes.”

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 same approach that firms adopt for their corporate accounts. The data underlying Mercer’s survey is refreshed as companies report their year-end accounts.

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