FTSE 350 DB schemes’ strong funding positions continue, but assets are not being invested as the Government would like 

London – 17 April 2024

Mercer’s monthly analysis of FTSE 350 pension schemes shows an aggregate surplus which improved slightly over March 2024. The aggregate funding level was 111% at the end of March, increasing from 110% at the end of February.

Adam Lane, head of corporate investment consulting at Mercer, said “With DB schemes currently well-funded, the Government has turned its attention to encouraging them to invest for UK growth in what it calls productive assets. But we worry that many UK pension schemes will not be rushing to invest in such assets as they continue to de-risk.”

The Government is currently consulting on measures to encourage Defined Benefit (DB) schemes to “invest for surplus” in productive asset types, but whether this will work as intended is to be seen.

Mr Lane continued “Pension schemes, like all investors, need compelling investment opportunities and for those opportunities to meet their requirements. The nature of DB schemes means that risky, illiquid or non-competitive UK assets will not fit the bill unless they are adequately compensated.”

The Government’s ongoing consultation on Options for DB Schemes looks at measures which might expand risk appetites, but it does not encourage investment in UK productive assets specifically. Mercer believes the Government would need to go further to achieve its aim to change the behaviour of UK schemes.

“Absent further measures, we do not see DB assets supporting UK growth in the way the Government intends. Instead, over the next five years, we see UK  asset exposure reducing as schemes dispose of their gilt portfolios to finance buy-out deals with insurers.”

Background to the March analysis:

Bond yields and the market’s expectation for inflation both fell slightly over March. The funding position of the FTSE 350 pension funds on an accounting basis shows a slight rise in the surplus at the end of March according to Mercer’s Pensions Risk Survey data analysis for March 2024.

The analysis shows that the accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased from £59bn to £66bn at the end of March 2024. The present value of liabilities increased from £603bn on 29 February 2024 to £613bn on 28 March 2024. Asset values increased from £662bn to £679bn at the end of March 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 29 March 2024, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £679 billion, compared with the estimated value of the aggregate liabilities of £613 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 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 over $20 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.