The accounting position of defined benefit (DB) pension schemes at the UK's 350 largest listed companies moved from a deficit to a surplus last month, research from Mercer has found.
The consultancy firm's data shows that FTSE 350 DB schemes recorded a surplus of £10bn on 31 March, compared to a deficit of £68bn at the end of February.
Liabilities fell by a massive £119bn to £795bn, compared to £914bn at the end of February, while asset values decreased by £41bn to £805bn.
Mercer said that the dramatic fall in liabilities was mainly caused by a significant increase in corporate bond yields, but that this is unlikely to impact funding measures used by trustees.
Charles Cowling, partner at Mercer, said: “The current economic crisis caused by the coronavirus pandemic is sending shock waves through global financial markets and disrupting international trade and supply chains.
“Against this backdrop, it may be surprising that pension deficits have turned into surpluses.
“This is due to the accounting rules on how pension liabilities are measured for company accounts. This does not affect how trustees, or the Pensions Regulator, look at pension deficits.”
Mercer’s data relates to about 50% of all UK pension scheme liabilities and analyses pension deficits calculated using the approach companies have to adopt for their corporate accounts.
With interest rates down to record low levels, the firm said that pension liabilities, as measured by trustees, are actually increasing just as pension assets are falling.
“2020 will therefore be a challenging year for actuarial valuations and trustees are urged to start their planning early,” Cowling said.
Trustees are facing additional challenges brought on by the COVID-19 outbreak, such as ensuring continual payments to members and managing higher fraud risks.
However, the greatest concern for trustees is around the strength of company covenants and the ability of employers to maintain payments to schemes at a time of financial distress.
“The Pensions Regulator (TPR) has published guidance on how trustees should respond to employer requests for deferring contributions payments,” Cowling continued.
“Whilst TPR is asking trustees to follow a potentially time consuming and costly process, it is not in anyone’s interests to allow otherwise sound businesses to fail due to a short term cash flow crisis.”