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Defined Benefit pension deficits increased to £127bn as at 31 March 2015
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Yields on AA Corporate fell back again during March reversing part of the strong increase during February
At 31 March 2015, asset values were £629bn (representing an increase of £7bn compared to the corresponding figure of £622bn as at 27 February 2015), and liability values were £756bn (representing an increase of £18bn compared to the corresponding figure of £738bn at 27 February 2015).
“Bond yields fell back again in March reversing some of the rise in yields seen during February which had provided what seems like a rare period of good news at that time,” said Ali Tayyebi, Senior Partner in Mercer’s Retirement business. “This means deficits have increased to near their record high, and the timing will be particularly unwelcome for those companies with accounting periods ending on 31 March. The increasing size of pension liabilities is also highlighted by the fact that the funding levels were at 83% a couple of years ago, the monetary value of the deficit would have been £108bn – now an 83% funding level equates to a deficit of £127bn, almost a 20% increase.
"Although our figures monitor the deficit on the basis used for reporting pension deficits in company accounts, the picture will be similar on the funding bases which are typically agreed between trustees and employers for setting deficit contributions to the pension scheme,” added Mr. Tayyebi.
Le Roy van Zyl, Principal in Mercer’s Financial Strategy Group, said,
“The deterioration in funding positions during March emphasises the significant volatility in the market, and there is little indication that this volatility will diminish any time soon. This set-back is particularly important for a number of schemes and sponsors where 31 March is a key measurement date. Reducing the volatility through a range of de-risking actions has become a primary objective for schemes and sponsors. Particular care is needed to choose and plan for the exact sequence and timing of the steps taken, with a combination of different approaches frequently leading to more efficient and meaningful results. Such a “business plan” has become a necessity. The volatility also means that detailed preparation is required to ensure that implementation can occur quickly once specific market conditions are reached, otherwise it is easy to miss opportunities.”
Mercer’s data relates to about 50% of all UK pension scheme liabilities and analyses pension deficits calculated using the approach companies have to adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts. Other measures are also relevant for trustees and employers considering their risk exposure. But data published by the Pensions Regulator and elsewhere tells a similar story.
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