On the go: The deficit of defined benefit pension funds for the UK’s 350 largest listed businesses rose to £41bn at the end of 2018, from £32bn at the end of 2017 – an increase of 28 per cent, according to Mercer.
The consultancy’s 2018 Pensions Risk Survey showed that the quoted funding level decreased by 1 per cent to 95 per cent for the full year.
It said the increased deficit was due to a £19bn fall in asset values, to £747bn from £766bn. Liabilities however, from 2017 to the end of last year, have dropped by just £10bn to £788bn.
During the year, pension funds were in surplus for five months from May to September, with the deficit increasing in December alone to £41bn from £24bn. According to Mercer, this was almost entirely due to rising liabilities as corporate bond yields fell, partly offset by a drop in market implied inflation.
Le Roy van Zyl, a partner at Mercer, said: “2018 was a turbulent year and it is disappointing to see it finish in deficit after finally reaching a surplus for the first time since Mercer began regularly monitoring the position.”
He said that while the return to deficit is unwelcome, “we are still in a markedly better position compared to the very large deficit following the 2016 Brexit vote. However, the significant volatility demonstrates the importance of schemes locking in gains when opportunities to take risk off the table arise”.
The Mercer data relate to approximately 50 per cent of all UK pension fund liabilities. It analyses pension deficits calculated using the approach companies have to adopt for their corporate accounts.
