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04

Mercer: FTSE 350 DB deficits rise to £102bn

Open-access content Friday 4th April 2014 — updated 5.13pm, Wednesday 29th April 2020

Deficits on defined benefits schemes of FTSE 350 companies increased to just over £100bn at the end of March, driven by a reduction in asset values, according to Mercer’s pension risk survey

Mercer said that, based on IAS19 accounting rules, deficits increased marginally to £102bn, equivalent to a funding ratio of 85%, compared to £101bn at the of February.

Asset values dropped by 0.17% from £572bn at the end of February to £571bn in March, said the consultancy. It added that liability values stood at £673bn which showed no change from the previous month.

Ali Tayyebi, Mercer's head of DB Risk in the UK, noted that there wasn't much movement in asset values during the month, despite the immediate negative market reaction to events in Ukraine. 

'This will have come as a relief to many companies with accounting year ends on March 31 2014,' he said. 

'Deficits have now remained steady around the £100bn level since September 2013. This might suggest a more stable financial environment but not necessarily a helpful one for those employers looking for positive investment experience to help them make inroads into their pension scheme deficits.

'For companies with accounting year ends of March 31 this will mean that, on average, there will be a fairly neutral impact on corporate balance sheets, although the position could vary significantly on an individual basis.'

Adrian Hartshorn, senior partner in the firm's financial strategy group, added that the Budget announcement created a period of uncertainty on the options available to manage DB pension liabilities in the longer term.

Hartshorn said: 'Although most of the Budget's headlines related to the welcome news of increased flexibility for defined contribution schemes, the outcome of the consultation now taking place on the future of transfers from DB schemes to DC arrangements could have a material impact on the ability of companies to manage risk in their defined benefit schemes, as well as the choice and flexibility afforded to the members of those schemes.'



This article appeared in our April 2014 issue of The Actuary.
Click here to view this issue
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