FTSE 350 pension scheme funding stabilises in the aftermath of the gilt market turmoil 

• Mercer’s FTSE 350 analysis shows a small increase in surplus from £29bn at end October to £31bn at end November, driven by assets outperforming liabilities.
• November saw the release of the Chancellor’s Autumn Statement which looks to have had limited impact on gilt markets, implying some level of confidence in the Government’s fiscal policy but also highlighting a stark contrast with the turmoil that arose from the “mini budget” in September.

London, 06 December 2022 

Mercer’s Pensions Risk Survey data analysis for November shows that the accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased marginally to £31bn at the end of November. The present value of liabilities rose from £600bn at 31 October 2022 to £627bn at the end of November driven by a fall in corporate bond yields, offset to an extent by falling future implied inflation expectations. Assets outperformed the liabilities by rising over the period to £658bn compared to £629bn at the end of October.

Matt Smith, Principal at Mercer said, “The aggregate funding position on an accounting basis appears to have stabilised following the aftermath of the events at the end of September, with a surplus of £31bn at the end of November.

Mr Smith remarked that November saw the release of the Chancellor’s Autumn Statement, which focused on tax increases and spending cuts designed to shore up public finances and reassure markets.

“In contrast to the former Chancellor’s “Growth Plan” in September, the Autumn Statement looks to have had little impact on UK gilt markets, implying some level of confidence in the Government’s new fiscal policy but also highlighting the stark contrast in the handling of the two events and the market’s reaction to them,” he said.

“However, many pension schemes are likely to be working through the next steps in relation to both their investment strategy and their broader funding plans. Next steps will include consideration of The Pensions Regulator’s statement of 30 November 2022 on LDI which reinforced the need for sensible collateral and liquidity management.”

Mr Smith concluded, “The Pensions Regulator’s recent statement confirms the need for increased focus and tolerances on LDI, as well as strong governance, but pleasingly they have retained a flexible framework for schemes to work through sensibly.

“For pension schemes, this provides a focus for ongoing discussions around risk management.”

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.

Ends

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 30 November 2022, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £658 billion, compared with the estimated value of the aggregate liabilities of £627 billion.