Pensions scheme deficit[1] remained unchanged at the end of May, but experienced significant volatility over the course of the month, according to research by Mercer.
The consultant’s Pensions Risk Survey data found the accounting deficit of defined benefit pension schemes for the UK’s largest 350 listed companies stood at £93bn at the end of May, down slightly from £95bn in April, but up from £75bn at the end of 2014.
Asset values were at £641bn as of 29 May, representing an increase of £3bn compared to the corresponding figure of £638bn as at 30 April, while liability values were £734bn. This represented an increase of £1bn compared to the corresponding figure of £733bn for April, Mercer said.
It said the small improvement in deficits was largely driven by an increase in corporate bond yields although even this has been substantially offset by an increase in market implied inflation. The result of the General Election in May also appeared to have had little overall impact on the end of month funding position of UK schemes, Mercer found.
However, senior partner Ali Tayyebi added: “The apparent stability in deficits over the last three month-ends might provide some comfort compared to some of the bigger fluctuations seen in earlier months, but it is very cold comfort when this stability is around such historically high levels.”
Despite the deficit remaining largely unchanged from month-end to month-end, Mercer described the material volatility during the month as “very significant”.
Mercer’s Financial Strategy Group principal Le Roy van Zyl added: “Looking back over the past year, we see that deficits have been as high as £100bn and as low as £70bn. Scheme sponsors and trustees with a prepared and robust process to take advantage of the opportunities and threats that arise will therefore be much better able to deal with the pension issues.
“In this, it is important to recognise that a number of risk and cost management steps can be taken while one waits for investment markets to become more favourable. Key steps here include longevity hedging and providing scheme members with greater choice with regard to their benefits.”
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