FTSE 350 pension schemes remain in surplus after dip in funded status 

Is this surplus a ‘blink and you might miss it’ moment?

• Surplus fell from £11bn to £2bn over the month of July
• Accounting liabilities increased to £709bn driven by falling bond yields while asset values also increased
• Department for Work and Pensions consultation proposes an increase in requirements on pension schemes to reduce risk, so opportunities should be assessed
  

London, 3 August 2022

Mercer’s Pensions Risk Survey data shows that the accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies decreased by £9bn over the course of July, standing at a total surplus of £2bn by 29 July 2022. Liabilities rose from £667bn at 30 June 2022 to £709bn at the end of July driven by falls in corporate bond yields and a rise in the market’s view of future inflation. Asset values also increased over the period to £711bn compared to £678bn at the end of June, which helped to offset the increase seen in the liabilities.

Matt Smith, Principal at Mercer, said: “The month-end aggregate funding position on an accounting basis is expected to continue to be showing a surplus, despite bond yields falling. The reduction in surplus is a timely reminder, for trustees and corporate sponsors looking for opportunities to lock in funding gains, that markets remain volatile and if you blink there is always the chance you might miss it.”

Mr Smith added: “Last week also saw the Department of Work and Pensions issue its long-awaited consultation on funding regulations, with a proposal for pension schemes to have their long-term plans set out in a funding and investment strategy.

“The proposed regulations could significantly change long term funding objectives and will increase the focus on journey planning. With funding positions currently strong, employers may wish to strengthen their engagement with trustees on potential opportunities and consider the end game for their schemes.”

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.

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 July 2022, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £711 billion, compared with the estimated value of the aggregate liabilities of £709 billion.

Sample Data Points