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Pensions deficit of FTSE 350 companies falls

10 April 2018

New data from Mercer has shown that the deficit of defined benefit pension schemes for the UK’s 350 largest listed companies fell significantly in the first three months of 2018.

The Pensions Risk Survey found the FTSE350 pension deficit has fallen by £4bn to £72bn so far this year. It follows an £8bn drop in 2017; a fall of over 9%.

The fall has been achieved through a reduction in pension schemes’ liabilities as a result of rising corporate bond yields, Mercer said. Liabilities have gone down by £19bn to £838bn, while asset valuations have fallen by £15bn to £766bn in the first quarter of 2018.

Alan Baker, partner and chair of Mercer’s DB Policy Group, said: “2018 has already delivered a meaningful reduction in the pensions gap, which frees up money to either be invested in growth or returned directly to investors. However, the continuing decline of asset valuations serves as an important reminder of the very real risks facing pension schemes. Trustees and sponsors must actively monitor and mitigate the risks they’re running, to ensure their exposure is in line with their risk appetite.”

Le Roy van Zyl, partner and strategy adviser, added: “The quarter saw very significant asset and liability swings, with recent declining asset valuations creating cause for concern. In response, we continue to see schemes opting for strategies that protect themselves from the most adverse outcomes, whilst retaining some upside potential. Experience is also emphasising the need to be able to react quickly to opportunities that may well be short lived.”

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