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11

Mercer: volatile October 'pushed FTSE350 pension deficits to over £700bn'

Open-access content Thursday 6th November 2014 — updated 5.13pm, Wednesday 29th April 2020

UK market volatility pushed the liabilities of FTSE350 defined benefit pension schemes to over £700bn during October, Mercer has said.

Deficits also grew to £87bn, a funding ratio of 87%, just below the September figure of £89bn, according to the retirement consultants.

Ali Tayyebi, senior partner in Mercer's retirement business, noted that October had been one of the more volatile months for pension schemes funding levels.

He said: 'Deficits increased by £24bn in the first half the month only to fall back by virtually the same amount over the second half.

'This is a stark reminder that volatility has not gone away and that companies and trustees should have an active plan to manage the associated risks in measured was against their clear long term objectives.'

Adrian Hartshorn, senior partner in Mercer's financial strategy group, added: 'Many companies have December 31 year ends and will now be monitoring market yields closely. This volatility might only be short-lived, but could have a more material impact on company balance sheets if conditions similar to mid-October occur at year-end.'

Overall asset values remained surprisingly stable throughout the month, Mercer said.

For example, a dip of nearly 7% in the UK equity markets in the first two weeks of the month was balanced as falling bond yields buoyed the value of bond assets. It said the reduction in AA bond yields observed in the first part of October was driven at least partly by lower government bond yields. This resulted from lower levels of liquidity in the middle of the month.

Similarly, consultants Hymans Robertson estimated last week that DB pension deficits of FTSE350 companies jumped by 50% to £96bn in the first two weeks of October, because of equity market falls and a drop in gilt yields.

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. 

This article appeared in our November 2014 issue of The Actuary.
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