FTSE 350 pension schemes surplus continues to fend off the impact of rising costs

8 September 2022

Mercer publishes on its website:

• Month-end surplus increased from £2bn to £9bn compared to July
• Volatile conditions at the month end saw bond yields jump, increasing surplus, despite continued inflationary pressures
• With the cost of living crisis squeezing members’ finances, schemes and sponsors may see increased member activity over the coming months and could look to support members by increasing education on their options.

London, 3 September 2022

Mercer’s Pensions Risk Survey data shows that the accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased by £7bn over the course of August, standing at a total surplus of £9bn by 30 August 2022. Liabilities fell from £709bn at 29 July 2022 to £657bn at the end of August driven by rising corporate bond yields offset by a rise in the market’s view of future inflation. Asset values also fell over the period to £666bn compared to £711bn at the end of July, a fall of £45bn which reduced the impact of the liability falls.

Matt Smith, Principal at Mercer, said: “The August aggregate funding position on an accounting basis has remained in surplus, despite inflation expectations rising. But the aggregate funding position has been volatile over August 2022 and there is no sign that stability is around the corner. Bond yields jumped through the 4% mark – the first time for 8 years – and inflation expectations continue to increase. While rising inflation creates many challenges for individuals and businesses, it will be a welcome relief that pension schemes’ funding continues to fend off these effects.”

Mr Smith added: “With the cost of living continuing to rise and members’ personal finances expected to be squeezed over the remainder of the year, schemes may see increased member activity as members explore options to bolster household incomes. Trustees and Sponsors will play a key role in ensuring members understand their options and receive fair value for their benefits.”

Mercer’s Pensions Risk Survey data relates to about 50% of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach companies have to adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts. Other measures are also relevant for trustees and employers considering their risk exposure. Data published by the Pensions Regulator and elsewhere tells a similar story.

Source: Mercer