Pension scheme funding remains strong with higher bond yields despite challenges of 2022 – is this the new normal? 

  • Mercer’s analysis of FTSE 350 pension scheme funding shows a £35bn surplus at the end of December 2022: a £111bn improvement in funding levels during the twelve months to December 2022, and a stark contrast to the £76bn deficit at the end of December 2021
  • During December 2022 there was a small increase in surplus, driven by rising bond yields, from £31bn at end November 2022 to £35bn at end December 2022
  • Rising bond yields could represent a new normal for 2023 with schemes potentially increasing their focus on locking in funding gains, whilst balancing liquidity and cashflow demands

London, 10 January 2023

Mercer’s Pensions Risk Survey data analysis for December 2022 shows that the accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased marginally to £35bn at the end of December 2022. The present value of liabilities fell from £627bn at 30 November 2022 to £595bn at the end of December 2022 driven by a rise in corporate bond yields, offset to an extent by rising future implied inflation expectations. Asset values also fell over the period to £630bn compared to £658bn at the end of November 2022, which reduced the impact of the liability falls.

Matt Smith, Principal at Mercer said, “Our analysis shows that the aggregate funding position of FTSE 350 pension schemes, on an accounting basis, ended the year with a surplus, which is in stark contrast to the position at the end of December 2021.

“Some may ask whether this is the new normal. Many pension schemes have stayed resilient despite a year fraught with challenges and market volatility caused by the situation in Ukraine, the continuing impact of Covid-19 and Brexit, and market turbulence caused by the UK’s ‘mini-budget’. Now, schemes may find themselves closer to their end game and may be looking to capitalise on the improvement through 2023.”

In late 2022, The Pensions Regulator (TPR) launched two consultations on the regulatory aspects of the new DB pensions funding regime, building on the earlier consultations from both TPR and the Department of Works and Pensions (DWP), setting out more detail on TPR’s expectations for scheme funding. The key requirement is for pension schemes to have an agreed long-term objective and journey plan.

Mr Smith added, “The TPR consultation is timely. Trustees and employers are taking stock of what’s next: securing their end game and assessing newer options such as consolidators or pursuing run-off. We expect journey plans will now also be taking account of recent investment changes.

“Overall, 2022 demonstrated the value in robust planning and collaboration, which will be key aspects for trustees and employers in looking forward and agreeing realistic objectives.”

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 31 December 2022, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £630 billion, compared with the estimated value of the aggregate liabilities of £595 billion.


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 83,000 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 Twitter.


Sample Data Points