The accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies rose by £2bn over the last month as markets prepared for a second wave of coronavirus.
That is according to analysis by consultancy firm Mercer, which found that the FTSE 350's pension deficit stood at £75bn on 30 October, up from £73bn at the end of September.
Liabilities fell from £877bn to £871bn as bond yields increased, while asset values decreased from £804bn to £796bn.
Charles Cowling, chief actuary at Mercer, said: “COVID-19 storm clouds are gathering again as markets prepare for a second wave of coronavirus, and the impact wide ranging lockdowns will have on global economic growth.
“In the UK, the latest data from the Office of National Statistics reveals that the economy is growing slower than forecast, remaining at 9.2% below its pre-pandemic peak.”
Mercer’s data relates to 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.
It comes after separate figures recently showed that pension funds are still, on average, experiencing returns that are 2.6% lower than at the start of the year, before the COVID-19 crisis.
Mercer urged trustees to maintain monitoring after the Bank of England suggested earlier this month that it would not yet introduce negative interest rates, while also hinting that another round of quantitative easing may be imminent.
“Finally, various political uncertainties caused by the forthcoming US presidential election and Brexit negotiations, indicate further risk for pension trustees at a time when many employers are facing challenges and covenants are under big pressure,” Cowling continued.
“Trustees are therefore urged to monitor their situation wisely and seek opportunities to reduce risk where possible.”
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Author: Chris Seekings
