Defined benefit pension schemes saw their accounting deficit increase last month despite rising equity markets, according to figures published today by Mercer.
In its latest Pensions Risk Survey, the consultancy's estimate of the aggregate IAS19 measure of FTSE350 DB pension schemes' deficits stood at £92bn on February 29. This compared to £84bn at the end of December 2011 and £83bn at the end of January. It equates to a funding ratio of 84%.
An increase in asset values between the end of last year and the end of last month - from £478bn to £494bn - was offset by a fall in the yield on the corporate bond yield index used to calculate liabilities. IAS19 liability values rose from £562bn to £586bn over the same period as a result.
Ali Tayyebi, senior partner and pension risk group leader at mercer, said that historically low yields on government bonds and a decline in the extra yield on corporate bonds could combine to push up liability calculations.
'However, bond yields at longer durations have not fallen. This means that some companies who have taken this fully into account could have seen a reduction in liabilities over the month.
'We expect to see developments in the approaches companies adopt for valuing pension scheme liabilities in their accounts when the end of December accounts are published.'
According to Mercer, relatively high asset values and corporate bond spreads remaining higher than they were a year ago means there is the possibility of further downside risks. The consultants noted that their data only relates to around 50% of all UK pension scheme liabilities, but said that despite this and other caveats, data published by the Pensions Regulator and elsewhere 'tells a similar story'.
Adrian Hartshorn, partner in Mercer's financial strategy group, said pension scheme deficits were often cited as a top risk needing to be addressed by company boards and could also prevent business growth.
He added: 'Increasingly investors and lenders will expect companies to be taking action to manage and reduce the deficit and the impact that the deficit has on company cash flow. As a result of these and other pressures there are now a range of innovative solutions available to tackle pension scheme deficits.'
