FTSE 350 company pension scheme deficits hit a record £119bn at the end of June following the Brexit vote, according to data.
Mercer’s Pensions Risk Survey revealed the UK’s largest listed companies experienced a £98bn increase in their deficits throughout June, driven by a fall in both government and corporate bond yields after the UK voted to leave the European Union.
At 30 June, asset values were £694bn, representing a rise of £31bn compared to the corresponding figure of £663bn at 31 May, and liability values were £813bn, representing an increase of £52bn compared to the corresponding figure of £761bn at the end of May.
Mercer said pension liabilities were at the highest level since its monitoring began. It added increases in asset values, driven by the devaluation of sterling and the possibility of a cut in UK bank base rates, had offset this increase in liabilities. However, the immediate response of the markets to Brexit was “clearly bad news” for pension scheme deficits.
Mercer senior partner Ali Tayyebi explained: “The fall in corporate bond yields meant that liability values increased by over 5% during just one month, corresponding to a 20% increase in deficit values. 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 8%.”
However, Tayyebi described the level of market volatility in the last week of June as “just an early skirmish in the fight to understand the longer term outlook for the UK’s economy and markets”.
He added: “More than ever, the risks and associated opportunities which this creates and the appropriate speed of response will be very specific to the circumstances of individual pension schemes, highlighting the value of frequent monitoring of funding levels and, for some clients, delegated investment management.”
