The funded status of U.K. pensions of FTSE 350 companies stood still in March, with a total deficit of about 81 billion, representing an 86% funded status, according to Mercer. The firms Pensions Risk Survey shows that the aggregate pension deficit of FTSE 350 companies is higher today than it was a year ago, despite company contributions in the time period of around 20 billion.
In December, U.K. pensions had deficits of about 73 billion, a funding ratio of about 87%, Mercer says.
That figures for U.K. pensions contrasts with those for U.S. pensions, which have increased their funded status over the past six months on the back of rising U.S. equities, according to BNY Mellon. The firm says the funded status in the States reached nearly 80% last month, compared to estimates by BNY Mellon and Mercer of 75% or lower in 2011.
Corporate bond yields, which are used to value liabilities, increased marginally in March resulting in a small decrease in liability values to 571 billion by the end of the month, Mercer says. Liabilities were offset by a reduction in asset values to 490 billion by the end of March, leaving the total funding ratio relatively the same.
Corporate bond yields went up for the first time in months, and it is therefore the first time in a while that we have seen a small reduction in liability values, says Ali Tayyebi, senior partner and pension risk group leader at Mercer. There has been reasonable calm over funding positions during the month, although the equity market falls over the last few days of March are a reminder that continued economic uncertainty may well mean continued volatility in funding positions as we go through the year.
Adrian Hartshorn, partner in Mercers Financial Strategy Group, says that the 17 billion rise in deficits over the last year despite 20 billion in employer contributions highlights the potential downside of running a mismatched investment strategy. Even in this period of low interest rates, there remain attractive opportunities for companies and trustees to reduce risk either through seeking some attractive investment opportunities or through managing the liabilities. Companies that take advantage of these opportunities will benefit from more stable and predictable future cash flows and less volatile deficits.
(CG)