Strong FTSE 350 funding position endures – what does this mean for the regulatory environment? 

  • Mercer’s FTSE 350 analysis shows a small increase in surplus from £49bn at end of June 2023 to £54bn at end of July 2023 driven by performance of equities over the month.
  • The funding level increased slightly from 108% to 109% and has not dipped below 105% since before the start of 2023.
  • With funding improvements which began in early 2022 enduring, some are questioning the need for TPR’s incoming Funding Code, at least in its current form.

London, 3 August 2023

Equities performed well while bond yields and future market expectations of inflation fell slightly over July. The funding position of the FTSE 350 pension funds on an accounting basis shows a slightly higher surplus than at the end of June according to Mercer’s Pensions Risk Survey data analysis for July 2023. 

Matt Smith, Partner at Mercer, said, “The Government has been looking for ways to increase DB pension schemes’ investment in what it calls productive finance to support UK growth. TPR’s new DB Funding Code, as consulted upon at the beginning of the year, would pull schemes in the opposite direction. 

“Some are now questioning the need for the new DB Funding Code, with the resurgence of strong funding positions and surpluses. But I don’t expect it to disappear entirely. Since the Mansion House announcements, TPR have stated they’ll clarify how their Code will accommodate investment in growth assets for open and immature schemes.

“This leaves us with uncertainty about when the new DB Funding Code will come into force and what it will say when it does. But ignoring the proposed new funding regime would be a mistake for trustees and sponsors alike.”

For some this uncertainty could cast doubt over how best to proceed with ongoing valuations, and those planning ahead for valuations falling over the next six to twelve months. However, trustees and sponsors will still be adhering to the high level principles of the draft Funding Code, planning for the long-term and seeking to reduce dependency of the scheme on the sponsor as set out in the TPR’s 2023 Annual Funding Statement.

Mr Smith continued, “At a time of heightened global and UK macroeconomic uncertainty, strong governance, clear objectives and rigorous risk management are all crucial - this is equally true for pension schemes and businesses.

“Trustees and sponsors who take the time to understand the current draft of the DB Funding Code, as well as where they might be currently deviating from it, will be better positioned to navigate whichever direction the Code ultimately takes.”

Mercer’s Pensions Risk Survey data analysis for July 2023 shows that the accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased to £54bn at the end of July 2023. The present value of liabilities increased from £578bn at 30 June 2023 to £583bn at the end of July 2023 driven by a fall in corporate bond yields, offset by a fall in market implied inflation. Asset values increased from £627bn to £637bn at the end of July 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.

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 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 Twitter @Mercer and LinkedIn.

About Marsh McLennan

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, or follow us on LinkedIn and Twitter.

Sample Data Points

A graph to show FTSE350 Retirement Plan deficits and funding levels
A table to show the High Quality Corporate Bond Yield, the FTSE All-Share index, and market implied inflation.
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