FTSE350 pension deficits rocket to a record £119 billion in wake of Brexit

Date: 07 Jul 2016

Citywealth

Mercer’s Pensions Risk Survey data show that the accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased from ¬£98 billion on 31 May 2016 to ¬£119 billion at the end of June in the aftermath of the Brexit vote.

At 30 June 2016, asset values were £694 billion, representing a rise of £31 billion compared to the corresponding figure of £663 billion at 31 May 2016, and liability values were £813 billion, representing an increase of £52 billion compared to the corresponding figure of £761 billion at the end of May.

Pension liabilities are at the highest level since Mercer’s monitoring began. Increases in asset values, driven by the devaluation of sterling and the possibility of a cut in UK bank base rates, have offset this increase in liabilities. However, the immediate response of the markets to Brexit was clearly bad news for pension scheme deficits.

“The fall in corporate bond yields meant that liability values increased by over five percent during just one month, corresponding to a twenty percent increase in deficit values,” said Ali Tayyebi, senior partner in Mercer’s retirement business. “Government bond yields fell even more than corporate bond yields which meant that liabilities on the funding basis, which pension scheme trustees typically use for setting cash contribution requirements, increased by over eight percent.”