DB pension scheme deficits continued to increase last month, driven by falling corporate bond yields and no let-up in inflation.
Mercer’s pensions risk survey shows that the scheme deficits of FTSE350 companies rose by £6bn over the course to October to stand at £94bn.
This increase was driven by a a £36bn increase in liabilities from £895bn at 30 September 2021 to £931bn at the end of October, caused by a fall in corporate bond yields. Asset values increased to £837bn compared to £807bn at the end of September.
Over the month the deficit varied from £93bn to £118bn.
Mercer UK wealth trustee leader Tess Page says: “Our recent survey with the CBI highlighted that employers continue to feel weighed down by the cost of managing DB pension schemes. This month’s data reinforces the challenges still faced by many schemes despite positive momentum on the asset side.
“Inflation remains above the Bank of England target, and implied future inflation is also elevated.”
She adds: “In a week when focus is rightly on climate change, this is a timely reminder that interest rates and inflation remain top of the risk list for many pension schemes. Along with planning their climate change risk strategy, trustees should consider reviewing their approach to hedging assets and liabilities to ensure their strategy remains optimal.”
Mercer’s Pensions Risk Survey data relates to about 50 per cent of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach companies have to adopt for their corporate accounts. Mercer says that data published by the Pensions Regulator and other sources also underline similar trends in this market.
