The aggregate deficit of the UKs 350 leading companies fell by £10bn in May despite a decline in equity values towards the end of the month, Mercer said today.
According to the consultancy's latest pensions risk survey, the estimated deficit of the FTSE 350 companies' pension schemes stood at £98bn at the end of May. This compares to £108bn a month earlier. Mercer's figures use the IAS19 accounting measure and relate to around 50% of all UK pension scheme liabilities.
While asset values remained unchanged over the month, at £557bn, the £10bn difference came as liability values fell from £665bn to £655bn.
Ali Tayyebi, head of defined benefit risk in the UK for Mercer, said: 'The fall-back in equity values towards the end of the month meant that, overall, it was a flat month for asset values despite the equity market getting close to its historic high value during the month.
'Corporate bond yields increased markedly over the month which had the effect of reducing liability values calculated for company accounting purposes, although the majority of this effect was offset by an increase in the market's expectation for long-term inflation.
'The combined effect of all these factors was to bring the deficit back down to just below £100bn. Taking a slightly longer term view, pension scheme assets have increased by around 15% since 31 December 2011. The problem is that liability values have increased by 20% since then.'
At the end of 2011, the aggregate value of the FTSE 350 pension plans' assets was an estimated £487bn, while liabilities were estimated at £548bn.
Adrian Hartshorn, senior partner in Mercer's financial strategy group, noted that, even though equity prices have improved since the turn of the year, scheme deficits have still increased by around £25bn so far in 2013.
'This emphasises the need for pension scheme trustees and sponsors to develop integrated solutions to manage pension scheme debt that take account not only the scheme assets, but also the scheme liabilities and other potential avenues of financial support,' he said.
'For example, there have been several recent cases of sponsors using balance sheet assets to support a funding solution. By providing additional security towards the trustees' funding objective, these non-cash assets might also enable the trustees to adapt their investment strategy to help manage their, and the company's, overall risk exposure.'
