FTSE 350 pension schemes reduce but remain in surplus
- Mercer’s FTSE 350 analysis shows a decrease in surplus from £69bn at end of May 2023 to £49bn at end of June 2023; driven by a fall in bond yields and an increase in market inflation expectations
- The vast majority of schemes are in a much better funding position than they may have expected to be just 12 months ago
- Trustees and employers may wish to consider opportunities to protect their position
London, 6 July 2023
Bond yields fell slightly by the end of June and with an increase in future market expectations of inflation, the funding position of the FTSE 350 pension funds on an accounting basis shows a lower surplus than at the end of May according to Mercer’s Pensions Risk Survey data analysis for June 2023.
Speaking on the analysis, Mercer‘s UK Funding Consulting Leader, Leanne Johnston said, “Even with the aggregate position falling back, the vast majority of FTSE 350 pension schemes are in a much better position than they might have expected to be just 12 months ago.
“Many are now well-funded, not just on an accounting basis but also against their long term funding targets or even against the cost of buyout.
“Nevertheless, the movement in position over the last month demonstrates the uncertainty and risks that are still present.”
According to Ms Johnston, trustees and employers may want to consider taking action to protect their position and to help with achieving their long-term goals.
“There is a range of end game options trustees and employers may consider,” said Ms Johnston. “For some, buyout is appropriate whereas for others, it may be that a more flexible approach is preferable.
“It is important that any option is considered with a scheme’s long-term goals in mind.”
Mercer’s Pensions Risk Survey data analysis for June 2023 shows that the accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies fell to £49bn at the end of June 2023. The present value of liabilities increased from £550bn at 31 May 2023 to £578bn at the end of June 2023 driven by a fall in corporate bond yields, and a rise in future implied inflation expectations. The rise in liabilities was offset slightly by an increase in asset values over the period to £627bn compared to £619bn at the end of May 2023.
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.