Pension deficit improved by a total of £43bn from £72bn at the start of the year to £29bn
The reduction in the deficit in the first half of 2018 is more than three times the total reduction for the whole of 2017
2018 expected to be a record for pension risk transfer due to improved funding levels, attractive pricing in the market and uncertainty over Brexit all driving risk reduction
At 29 June, liability values had decreased by £39bn to £818bn compared to £857bn at the end of 2017 due to an increase in corporate bond yields. Asset values were £789bn, an increase of £4bn compared to the corresponding figure of £785bn at the end of 2017. The quoted funding level improved from 92% to 96%.
Alan Baker, Head of DB Solutions and Partner at Mercer, said: “The first half of 2018 has seen a modest increase in asset values but the real story of H1 2018 is the huge reduction in deficits so far this year. This is good news which could be further improved once the latest longevity experience is brought into account. However, market volatility could dramatically reverse these improvements and has done so in the past. Trustees who run schemes need to continue to be prudent and ask themselves how much risk they really need to take to meet their funding requirements.”
Le Roy van Zyl, a strategic advisor and Partner at Mercer, added: “At the beginning of the year our expectation had been that 2018 would see schemes reduce risk and consolidate gains and that is proving to be the case. With continued uncertainty over the outcome of the Brexit negotiations, there is a clear need for pension scheme trustees and sponsors to be prepared for the fluctuating circumstances, not only in terms of scheme finances and risk, but also around the challenges of making effective decisions against this uncertain backdrop.”
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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