On the go: The pension deficit for the UK’s 350 largest listed companies fell by £9bn to £48bn by the end of June from £57bn at the end of May, the most significant monthly improvement in funding levels since November 2018, according to Mercer.
A £4bn rise in liabilities to £860bn was offset by a £13bn increase in asset values to £812bn, according to the consultancy’s recent Pensions Risk Survey.
A 0.07 per cent decline in corporate bond yields to 2.25 per cent was mitigated by a 0.05 per cent fall in market-implied inflation.
Charles Cowling, actuary at Mercer, warned: “Significant macroeconomic and political headwinds remain. The UK awaits a new prime minister following Theresa May’s resignation last month, and Britain’s negotiating position on Brexit is far from clear.
“A combination of global trade tensions and an increased perceived likelihood of a no-deal Brexit, means we expect market volatility to be a consistent feature of the months ahead.”
Furthermore, lower energy prices and weakening UK growth are reflected in consumer price index inflation falling back recently.
“However, a Brexit sterling crisis and resulting inflation shock is still a real possibility,” Mr Cowling added.
“In this uncertain environment, trustees should continue to prioritise risk management and actively seek to take advantage of market opportunities to de-risk.”
Mercer’s data relates to about 50 per cent of all UK pension scheme liabilities, and analyses pension deficits calculated using the approach companies have to adopt for their corporate accounts.
Data published recently by PwC shows a similar story. Its Skyval index shows that the deficit of the 5,450 UK defined benefit schemes stood at £220bn at the end of June 2019 – down £20bn from the previous month, with assets at £1.69tn and liabilities at £1.91tn.
The fall follows a £60bn increase in the deficit during May that came after an £80bn drop in the previous month.
Steven Dicker, PwC’s chief actuary, said: “The small improvement in the deficit has been mostly driven by positive performance in equity markets over the month. Overall, however, the yo-yo trend of recent months is largely a reflection of funds treading water as geopolitical and economic issues continue to rumble on.”
