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.

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 June 2023, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £627 billion, compared with the estimated value of the aggregate liabilities of £578 billion.

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 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 www.mercer.com. Follow Mercer on Twitter @Mercer and LinkedIn.

Marsh McLennan (NYSE: MMC) is the world’s leading professional services firm in the areas of risk, strategy and people. The Company’s 85,000 colleagues advise clients in 130 countries. With annual revenue of over $20 billion, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment through four market-leading businesses. Marsh provides data-driven risk advisory services and insurance solutions to commercial and consumer clients. Guy Carpenter develops advanced risk, reinsurance and capital strategies that help clients grow profitably and pursue emerging opportunities. Mercer delivers advice and technology-driven solutions that help organizations redefine the world of work, reshape retirement and investment outcomes, and unlock health and wellbeing for a changing workforce. Oliver Wyman serves as a critical strategic, economic and brand advisor to private sector and governmental clients. For more information, visit marshmclennan.com, or follow us on LinkedIn and Twitter.