FTSE 350 funding surplus’ slip for the first time in 2023
- Mercer’s FTSE 350 analysis shows a noticeable decrease in surplus from £47bn at end of February 2023 to £38bn at end of March 2023, driven by falling bond yields and growth market performance.
- Significant market volatility for yields and inflation expectations had surplus varying from £34bn to £55bn.
London, 6 April 2023
The funding position of the FTSE 350 pension funds on an accounting basis shows reduced surplus’, with bond yields falling by the end of March, according to Mercer’s Pensions Risk Survey data analysis for March 2023.
Matt Smith, Mercer Partner, noted, the market turbulence caused by stress in the banking sector has put a dent in the progress of schemes’ funding levels over March with a noticeable reduction in the aggregate surplus at the end of March.
“For Trustees and sponsors the deterioration at the end of March is unlikely to be helpful news; particularly those schemes who will be carrying out formal funding valuations at this date. For these schemes the last funding assessment (31 March 2020) was carried out when markets were distorted by short-term effects arising due to COVID-19 – three years on, many may have been expecting more stable conditions to inform the assessment but the opposite looks true.
“2023 seems likely to bring a further period of volatility” said Mr. Smith. “ Any highs and lows may bring threats and opportunities and we expect Trustees will wish to consider and understand the key risks that can damage a plan in this environment.”
Mercer’s Pensions Risk Survey data analysis for March 2023 shows that the accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies decreased to £38bn at the end of March 2023. The present value of liabilities increased from £589bn on 28 February 2023 to £605bn at the end of March 2023 driven by a fall in corporate bond yields, offset to an extent by a small rise in future implied inflation expectations. The rise in liabilities was offset by an increase in asset values over the period to £643bn compared to £636bn at the end of February 2023.
Mercer’s Pensions Risk Survey data relates to around 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.
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 March 2023, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £643 billion, compared with the estimated value of the aggregate liabilities of £605 billion.
Sample Data Points
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