FTSE 350 pension deficit hits £40bn at end of 2019

The accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased from £38bn at the end of November to £40bn on 31 December 2019, according to new data from Mercer’s Pensions Risk Survey.

At the end of the year, liability values were £882bn – the same value as the end of the previous month – and the data also revealed asset values to be £842bn, representing a decrease of £2bn compared to the end of November.

The position at the end of 2019 showed a small fall in the overall deficit – down from £41bn at the end of 2018 to £40bn – though Mercer’s data also revealed liability and asset values had both increased by approximately £95bn over the year.

Partner at Mercer, Charles Cowling, called 2019 ‘a challenging and volatile year’ in politics and markets, but said it had ended on a positive note with ‘markets rallying.’

“Although the General Election result gives some clarity for markets, there is no denying the general weakness in the UK and global economy, which means cuts in interest rates are likely,” he commented.

“The Bank of England’s Monetary Policy Committee recently voted to hold interest rates at 0.75% but suggested rates may need to be cut if the global economic growth stalls, or Brexit uncertainties persist. Inflation is expected to dip down to 1.25% in early 2020, which is positive news for pension schemes, though longevity may be on the increase again after a stalling in recent years.”

Cowling added that 2019 had been a record year for the settlement of pension liabilities – with the final figures for buy-out deals likely to break through £40bn. This would top the previous record of £24bn set in 2018.

Cowling continued: “This year could be the year trustees finally manage to largely eliminate interest rate and inflation risks and reduce longevity and equity market risks down to manageable levels.”

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