Mercer’s Pensions Risk Survey data shows that the accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies was £76bn at the end of April 2021, an improvement from £80bn at the end of March. The improvement was driven by a £16bn increase in asset values. Asset values were £799bn compared to £783bn at the end of March. Liability values increased from £863bn on 31 March 2021 to £875bn at the end of April 2021, driven by a fall in corporate bond yields offset by a small fall in inflation expectations.
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Tess Page, Partner and Trustee Leader at Mercer, said: “April saw further gains in growth asset prices, with the spring optimism observed last month continuing despite the nip in the air. Economic data continues to look robust, with a recovery in services on the back of vaccination efforts and the gradual lifting of social distancing measures. With pension scheme funding levels stable, many trustee boards and sponsors are focusing on long-term strategy and risk management, particularly with the recent announcements from the Pensions Regulator on the proposed new code of practice and requirements for schemes to conduct an “Own Risk Assessment”. Though still in review, the code of conduct is set to be a crucial tool to support modern scheme governance, adding value for members, trustees, and their sponsors.
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Ms Page added: “We remain life to the risk that the true cost and economic impact of the pandemic are yet to fully play out. With this in mind, pension trustees should consider taking opportunities to reduce risk when and where possible.”
Mercer’s Pensions Risk Survey data relates to about 50% of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach companies have to adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts. Other measures are also relevant for trustees and employers considering their risk exposure. Data published by the Pensions Regulator and elsewhere tells a similar story.
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Notes to editors
Mercer estimates the aggregate combined funded ratio of plans operated by FTSE350 companies on a monthly basis. This is based on projections of their reported financial statements adjusted from each company’s financial year end in line with financial indices. This includes UK domestic funded and unfunded plans and all non-domestic plans. The estimated aggregate value of pension plan assets of the FTSE350 companies on 31 December 2019 was £775 billion, compared with estimated aggregate liabilities of £815 billion. Allowing for changes in financial markets through to 30 April 2021, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £799 billion, compared with the estimated value of the aggregate liabilities of £875 billion.
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