The combined pension deficit of the UKs largest 350 companies has remained virtually unchanged over the past 10 years, despite firms paying an estimated £175bn into their schemes to close the gap, according to Mercer.
Analysis published by the consultancy yesterday shows that the FTSE 350 pension deficit at the end of June 2012 stood at £73bn, compared to £75bn at the end of June 2002.
In 2002, the value of assets and liabilities of the FTSE 350 schemes stood at £282bn and £357bn respectively. By 2012, assets held in the FTSE 350 defined benefit schemes had increased to £501bn while liabilities had increased to £574bn.
Adrian Hartshorn, partner in Mercer's financial strategy group, said the firm's data illustrated the impact that a sustained fall in bond yields, underperforming equities and improving longevity had had on scheme funding positions over the past 10 years.
'Even removing the impact of price inflation, 2012 liability values are much higher than they were in 2002, which can be accounted for by the falling bond yields and improving longevity,' he said.
'Whilst defined benefit schemes appear to be in better health compared to 10 years ago because the funding level is higher, big deficits remain despite very large company contributions over the period.'
Mercer said that, despite the past decade having seen improvements in how companies manage the risk associated with pension fund investment decisions, more could and should be done in light of the volatility in deficit figures seen over the past decade. Over the 10-year period, the FTSE 350 deficit moved from a low of £43bn in 2007 to a high of £103bn in 2009. The firm's most recent assessment of the FTSE 350 schemes' funding position showed a deficit of £63bn at the end of August.
'Companies need to make active decisions about the trade off between locking into more certain known costs of continuing to take risks that may or may not pay off,' Hartshorn said.
'Our data underlines how market movements impact on pensions schemes. While many have adopted de-risking strategies, many other schemes remain invested in riskier assets, which have resulted in the volatile deficit figures.'
Companies should establish a forward-looking plan to map out their objectives for the scheme, he added. This plan should be actively monitored and managed.
