On the go: The accounting deficits and liability values of the defined benefit schemes of the UK’s 350 largest listed companies rose by £13bn last month alone, according to research by Mercer.
Mercer’s pension risk management survey showed that the accounting deficit of the DB schemes increased to £103bn at July 31 from £90bn at the end of June, while liability values saw a similar increase, rising to £950bn from £937bn over the same period.
Asset values of £867bn remained unchanged through July.
Mercer chief actuary Charles Cowling, commenting on the findings, said: “Pension scheme deficits worsened again in the past month and compared with 12 months ago, as market turmoil continues.
“We may have reached the limit of the easing of lockdown measures ahead of any vaccine for coronavirus becoming available, and globally the outlook remains bleak with coronavirus cases increasing.”
Mr Cowling cautioned that some experts predict it will take until 2024 for the UK economy to return to normal, while the winding up of the furlough scheme this year could see the economy shrink by more than 10 per cent, while unemployment reaches almost 10 per cent.
“These are testing times for trustees who, more than ever, need to understand the financial challenges facing sponsoring employers,” he said.
“Focus will be on the Bank of England this week as it meets to review interest rates. Although a change to base rates is unlikely, it seems that markets are already pricing in a cut to negative rates and the bank is expected to publish a report on the prospect of negative rates.”
He added: “Now is not the time for pension trustees to be increasing investment risk. Rather, where possible, trustees should consider reducing risk, taking market opportunities to increase hedging programmes, and contemplate lower risk contractual cash flow-matching investments.”
