The deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies fell from £84bn to £76bn over 2017 – a decrease of more than 9%.
According to Mercer’s Pension Risk Survey, while corporate bond yields increased over the month, the benefits were largely offset by a rise in market implied inflation. A rise in corporate bond yields alone in September would have reduced liabilities close to 4.5 per cent, equivalent to around £40bn.
Asset values fell by £5bn at 30 September 2016 to £720bn from £725bn the previous month. Liability values also decreased by £13bn from £885bn to £872bn.
“This is money which can be invested to stimulate growth and drive the British economy, or can be returned directly to investors,” Mercer DB policy group chair, Alan Baker, said. With Brexit-related uncertainty, trustees need to consider the potential impact on their sponsor's financial security. Against this backdrop, we expect schemes to reduce risk and consolidate gains.
The data relates to around half of all UK pension scheme liabilities, with the recorded deficit fall reversing the trend of 2016 in which the shortfall more than doubled.
"The pace of risk management activity we saw in 2017 is likely to accelerate and we expect 2018 to be the biggest year ever for pension risk transfer."
JLT Employee Benefits also published its figures on scheme deficits which revealed that just 19 FTSE 100 firms now provide DB benefits, with provision estimated to have reduced 15% over the last 12 months.
This is thought to reflect the fact that firms are increasingly cutting DB pensions in order to prevent ballooning liabilities becoming an increasingly material risk.