-
Liabilities increased to a highest level ever of £870bn, following the BoE interest cut announcement
-
Despite asset rises, accounting deficits soared to a new high of £149bn on 4 August
On 4 August 2016, asset values were £721bn (representing a rise of £4bn compared to the corresponding figure of £717bn at 29 July 2016), and liability values were £870bn, representing an increase of £14bn compared to the corresponding figure of £856bn at the end of July. Both pension liabilities and deficits reached a record high at 4 August 2016, the highest level since Mercer started monitoring deficits on a monthly basis.
“This sudden increase reminds us that it is the outlook for future long-term secure investment returns which drives pension scheme deficits - much more than the short term performance of assets,” said Ali Tayyebi, Senior Partner in Mercer’s Retirement business. “Asset values are around 12% higher than they were a year ago but the ratio of assets to liabilities has reduced from 89% to 83% and the deficits have increased from £81bn to £149bn over the same period.”
Le Roy van Zyl, Senior Consultant in Mercer’s Financial Strategy Group, said: “The aftermath of the vote for Brexit is still having a significant impact. The Bank of England’s actions should help to support economic activity, but whether the economy is going into recession is still unclear. This will of course have an effect on pension scheme finances and the health of sponsors – in some cases significantly so, depending on schemes’ investment strategy and the nature of the sponsor’s business.”
Mr van Zyl added: “As these uncertainties may well not clear up for some time, and there is likely to be significant volatility still to come, it is not appropriate to follow a wait-and-see approach for the majority of schemes. Opening a dialogue between trustees and sponsors around how to tackle potential developments is a key step that can be taken in the face of these uncertainties.”
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.
|
