Pension scheme de-risking to continue into 2024, but upcoming Government consultation may lead to a re-think - Mercer 

• Mercer analysis of FTSE 350 pension funds, shows an aggregate surplus across company accounts of £47bn at the end of December 2023, a fall of £12bn over the month.

• Most companies report their accounts at the end of December, so although the funding position fell over the month, overall positions in 2023 saw an improvement.

• Schemes might expect to continue de-risking during 2024, supported by planned incoming regulation. Government’s upcoming consultation on options for DB schemes has the potential to create a sea change in the future of DB schemes.

London – 18 January 2024

Mercer’s monthly analysis of FTSE 350 pension schemes shows a decrease in the aggregate funding level across company accounts since the end of November 2023, reaching 107% at the end of December 2023. The aggregate surplus of £47bn compared to £35bn at the end of December 2022, an improvement over the calendar year.

Shane Tuohy, Principal and corporate pensions consultant at Mercer said, “By the end of 2022, bond yields had risen materially leading to an improvement in accounting funding positions. Commentators at the time suggested we could be entering a new normal of higher interest rates, and although they have come down, still remain higher than they have been for decades. We saw an initial rise in yields early in the year, but these have settled slightly, ultimately ending the year lower than they started.

“Compared to 2022, 2023 saw equity type assets perform much better which further improved funding positions. Many schemes took the opportunity to capitalise on those stronger funding positions, perhaps by de-risking investment strategies to ‘lock in’ positions or looking to secure pension benefits with insurers.”

Typically, a pension scheme’s funding position will fluctuate from day-to-day, but this is not the company's main focus. Their focus is on the position at their year-end, often the end of December, which is published in their accounts.

“Following a record level of de-risking transactions in 2023, we expect the trend might continue and evolve into 2024,” said Mr Tuohy. “Schemes that have already mitigated risks associated with market movements might turn their attention to remaining risks, such as longevity. And of course there are non-economic risks, as set out in this year’s World Economic Forum, Global Risks Report, such as cybercrime and cyber insecurity, cost of living and impact of climate change to consider. The Pensions Regulator’s long-awaited General Code could bring these into focus.”

Another long-awaited piece of regulation which is expected to come into force in 2024, is a new funding regime for DB schemes requiring schemes to more fully plan out their end-game strategies.

“Another possible factor here is the Government’s upcoming consultation on options for DB schemes, which is set to look at making extraction of surpluses easier and the role of consolidation,” said Mr Tuohy. “Both of these could have significant implications for end game plans for DB schemes.

“If surplus can be more easily utilised, could running on a scheme become preferable to buying it out with an insurer? And could consolidation be an alternative solution for some? It’s possible that 2024 could bring a sea change in the future of DB schemes.”


Background to the December analysis:

Bond yields decreased over December and equity markets grew. The funding position of the FTSE 350 pension funds on an accounting basis shows a smaller surplus than at the end of December according to Mercer’s Pensions Risk Survey data analysis for December 2023.

The analysis shows that the accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies decreased to £47bn at the end of December 2023. The present value of liabilities increased from £579bn on 30 November 2023 to £629bn at the end of December 2023 driven by a fall in corporate bond yields. Asset values increased from £638bn to £676bn at the end of December 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 adopted 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 December 2023, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £676 billion, compared with the estimated value of the aggregate liabilities of £629 billion.

The FTSE350 funding data is generated by Mercer. It represents estimates of companies’ pension scheme funding positions using IAS19, one of the International Accounting Standards. Mercer uses data provided by Refinitiv.

About Mercer

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 more than 85,000 colleagues and annual revenue of over $20 billion. Through its market-leading businesses including MarshGuy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit Follow Mercer on LinkedIn and X.

A graph to show FTSE350 Retirement Plan deficits and funding levels up to December.
FTSE High quality corporate bond yield, all-share index total return index, market implied inflation
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