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  • January 2015
01

FTSE 350 pension deficit increases by £27bn in less than a month

Open-access content 26th January 2015

The aggregate pension deficit in FTSE 350 firms has increased by £27bn to £104bn in a matter of weeks.

The increase, which took place between 31 December 2014 and 19 January 2015, was due to a "drop off in corporate bond yields", according to pensions and risks consultancy Hymans Robertson.

Jon Hatchett, partner and head of corporate consulting at Hymans Robertson, said: "These figures send a strong message to companies and pension trustees to place greater emphasis on managing the risks in pension schemes."

Hymans Robertson said the continued drop off in corporate bond yields since the end of 2014 had added £43bn to the costs of FTSE pension liabilities, but this had been offset by a £15bn rise in assets over the same period. The figures have been affected by rounding.

The firm believes the deficit could have significant impact on both balance sheets and profit and loss statements (P&L) for companies reporting in March. 

Hatchett said that capital market volatility was an "inescapable reality". He said: "Market sentiment about economic conditions can change very quickly. What we see today is a dramatic turnaround from several months ago, when everyone thought interest rates would rise and the gradual unwinding of QE [quantitative easing] was on the horizon."

Hatchett predicted the market would not improve. He said: "The picture at the end of 2014 was ugly, but it keeps getting worse. If we don't see a recovery, this could have a significant negative impact on balance sheets and P&L. For companies that haven't hedged sufficiently against this scenario, the picture could look rather grim."

This article appeared in our January 2015 issue of The Actuary.
Click here to view this issue
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Topics:
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