The aggregate IAS19 deficit of FTSE 350 defined benefit (DB) pension schemes approached £120bn at the end of May, according to research by Barnett Waddingham.
The consultant’s data also found some companies, particularly those in the industrial sector, have been more exposed to falls in pension scheme funding levels over the last 12 months than others.
It said in a period that had seen extraordinary drops in UK gilt yields, those companies which reduced or removed their exposure to changes in long-term interest rates will have fared the best.
On average, schemes in the financial sector hold 46% of scheme assets in bonds, whereas those from the industrial sector hold just 35%. This difference has played a large part in helping companies from the financial sector see returns on their pension assets exceed those in the industrial sector by almost 3% over the year.
Meanwhile, Mercer data revealed the estimated aggregate IAS19 deficit for FTSE 350 DB schemes to be lower at £72bn at the end of May – a funding ratio of 87%.
It said the impact on the deficit was almost entirely offset by a fall in the market’s view of long-term RPI inflation. This meant the overall liability calculation increased only marginally over the month to £568bn as at 31 May.
Asset values also fell marginally over the month to £496bn as at 31 May.
Mercer said many pension schemes which have done the groundwork to put inflation hedging triggers in place may find themselves in a position to increase their level of hedging at relatively attractive rates.
Mercer partner in the Financial Strategy Group Adrian Hartshorn said: “Many pension schemes who have done the ground work to put inflation hedging triggers in place may find themselves in a position to increase their level of inflation hedging thereby reducing their exposure to future inflation risk at relatively attractive rates compared to the recent past. This highlights that even amidst the market turmoil and uncertainty there are risk management opportunities for those who are well prepared.”
This came as the Pension Protection Fund (PPF) revealed the aggregate deficit of the 6432 schemes in the PPF 7800 index increased over the month to £312.1bn at the end of May – the highest since records began in 2003. National Association of Pension Funds chief executive Joanne Segars (pictured) said: “Cash-strapped businesses already struggling to keep these pensions going will have to find more assets to fill in the deficits.”
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