FTSE 350 pension schemes show surplus for the first time since 2018 

Now may be time to lock in gains

• Funding position moves from a £4bn deficit to a £11bn surplus over the month
• Accounting liabilities fall to £667bn driven by bond yield increases despite falling asset prices
• Now may be the time to lock in funding gains and consider the end game
  

London, 5 July 2022

Mercer’s Pensions Risk Survey data shows that the accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies at the end of June moved to a surplus over the course of the month, standing at a total surplus of £11bn by 30 June 2022. Liabilities fell from £716bn at 31 May 2022 to £667bn at the end of June driven by further rises in corporate bond yields and a small fall in the market’s view of future inflation. This more than offset the fact that asset values also fell, to £678bn compared to £712bn at the end of May.

Tess Page, Mercer UK Wealth Trustee Leader, said: “For the first time in over three years, the month-end aggregate funding position on an accounting basis is expected to be showing a surplus, and yet again the main driver was bond yields.

"Employers and Trustees will be looking to control risk, and funding improvements offer a fantastic opportunity to bank these gains. We expect that schemes will be exploring the right actions for their circumstances - ranging from a simple change in investment strategy to securing benefits with an insurance company. Those schemes with clear journey plans will be best-placed to act quickly.”

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 30 June 2022, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £678 billion, compared with the estimated value of the aggregate liabilities of £667 billion.

Sample Data Points