DB pension scheme deficits have continued to increase during January, despite rising bond yields.
Figures from Mercer’s latest pension risk survey showed that deficits for the DB schemes of the UK’s 350 largest listed companies rose by £4bn in January, to stand at £80bn by the end of the month. This compares to £76bn at the end of the December 2021.
In total liabilities fell over this period – from £913bn at the end of Dec, to £879bn at the end of January. This was caused by a rise in corporate bond yields, though offset by an increase in market expectations of inflation.
However over the same period asset values fell further to £799bn, compared to £837bn at the end of December. Mercer says this is driving the deficit increases.
Mercer UK Wealth trustee leader Tess Page says: “Inflation is certainly giving pension schemes food for thought in 2022. Investment markets also took a bit of a hit during January, with global equity prices falling back.”
She adds: “Trustees and scheme sponsors are looking ahead to a busy year in pensions, with the new Code of Practice and climate change reporting on the horizon, alongside cracking GMP equalisation and preparing for pensions dashboards. Those schemes that have already tackled their key risks around investments, inflation, and interest rates will be best-placed to navigate 2022.”
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.