Dramatic bond yield increases over January 2024 

  • Mercer analysis of FTSE 350 pension funds, shows an aggregate surplus across company accounts of £64bn at the end of January 2024, an increase of £17bn over the month.
  • The improvement seen over January represents a reversal of December’s deterioration and highlights the impact of market volatility on pension schemes.
  • With the demand for government debt expected to fall significantly the increase in bond yields seen over January could continue.


London – 15 February 2024

Mercer’s monthly analysis of FTSE 350 pension schemes highlights the impact of significant bond yields increases during January 2024.  These increases are not as large or as fast as seen in the mini-budget of September 2022, but with the demand for government debt from pension schemes expected to fall in 2024, this could be the tip of the iceberg.  

Mercer’s analysis shows an increase in the aggregate funding level across company accounts since the end of December 2023, reaching 111% at the end of January 2024, a reversal of the deterioration seen over December 2023.

Adam Lane, Head of Corporate Investment Consulting at Mercer said,  “Pension scheme funding positions are tied to the market and the volatility we’ve seen over the last few months really brings this into focus. Markets are pricing in falls in interest rates during 2024, but this should not be seen as the expected outcome.  Our analysis suggests £300bn of pension assets could potentially be transferred to insurers in the coming years requiring significant sales of government bonds which, in the absence of any new buyers, is likely to put major upward pressure on yields and UK finances. It would seem volatility is here to stay for pension schemes.”

The UK’s Debt Management Office is aware of this problem and is expected to announce a reduction in the issuance of government bonds alongside the spring budget.

Mr Lane continued, “With the improvement we’ve seen in schemes’ funding positions since 2021, many schemes have taken action to lock in these stronger positions by de-risking their investment portfolios.  Many schemes who have not passed their liabilities to an insurer have been making larger allocations to credit instruments and hedging funding positions against market movements. However, while many schemes will now be running lower levels of risk, residual risks will have become more pronounced as a result. For example, we anticipate those who have increased allocations to credit-instruments will now be bearing a larger amount of credit risk. We expect that this may come into sharper focus through the remainder of 2024.”

Background to the January analysis:

Bond yields increased over January and UK equity markets fell. The funding position of the FTSE 350 pension funds on an accounting basis shows a larger surplus than at the end of December according to Mercer’s Pensions Risk Survey data analysis for January 2024.

The analysis shows that the accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased to £64bn at the end of January 2024. The present value of liabilities decreased from £629bn on 31 December 2023 to £597bn at the end of January 2024 driven by an increase in corporate bond yields. Asset values decreased from £676bn to £661bn at the end of January 2024.

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 adopted 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.

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 at 31 December 2019 was £775 billion, compared with estimated aggregate liabilities of £815 billion. Allowing for changes in financial markets through to 31 January 2024, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £661 billion, compared with the estimated value of the aggregate liabilities of £597 billion.

The FTSE350 funding data is generated by Mercer. It represents estimates of companies’ pension scheme funding positions using IAS19, one of the International Accounting Standards. Mercer uses data provided by London Stock Exchange Group.

About Mercer

Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in over 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with more than 85,000 colleagues and annual revenue of $23 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit mercer.com.  Follow Mercer on LinkedIn and X.

Sample Data Points

A graph to show FTSE350 Retirement Plan deficits and funding levels up to January.
FTSE High quality corporate bond yield, all-share index total return index, market implied inflation.
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