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10

FTSE350 defined benefit deficits 'up 50%' in early October

Open-access content Monday 27th October 2014 — updated 5.13pm, Wednesday 29th April 2020

The defined benefit pension deficits of the UK’s largest companies jumped by 50% to £96bn in the first two weeks of October, consultants Hymans Robertson have found.

Collective defined benefit pension deficits for FTSE350 businesses grew from £63bn on September 30 to £96bn on October 15, because of equity market falls and a drop in gilt yields, the firm said.  

 'This is taking us back to funding levels seen in the summer of last year. A typical scheme will have seen their funding level drop by around 5 and 10% since the beginning of September,' said Jon Hatchett, head of corporate consulting at Hymans Robertson.

'The collective FTSE350, despite paying in cash contributions of around £15bn last year, has ended up in a worse position that it was 12 months ago.'

The firm said market volatility highlighted the need for companies to continually look for ways to de-risk their pension schemes to reduce the possibility of paying out more cash in the future. 

It noted that equity markets had a difficult September and early October with the FTSE100 index down from a high 6900 to around 6200 in the last few days, due to a decline in gilt yields, global economic slowdown, the Ebola outbreak and political instability.

Hatchett said: 'The short-term outlook remains unclear and, in these instances, markets often overshoot.  We would not recommend knee-jerk reactions to short-term market moves. 

'Pension scheme funding is a long-term process and the recent falls will not necessarily have knocked the scheme off the long-term track. However, the greatest concern will likely be for companies who have schemes nearing a valuation.

'In environments such as this, daily online monitoring of scheme funding and forward-looking risk analytics are essential tools for managing schemes.'

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

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