Regulator urges trustees to exercise caution amid spiralling pension deficits

Oliver Gill
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UK Faces Pension Crisis
Surveys are consistently showing record levels of deficits on defined benefit pension schemes (Source: Getty)

British companies are facing the prospect of significant cash top-ups on defined benefit pensions schemes after more evidence was released today that deficits are at record highs.

Pension deficits for Britain's 350 largest listed companies increased from £119bn to £139bn during the month of July alone according to data prepared by pension specialist Mercer.

The survey also highlighted the deficits of the same companies have jumped 40 per cent since May, corroborating similar deficit levels outlined in the JLT Employee Benefits Index on Monday.

Read more: Pension deficit headache for British companies

Although equities have recovered in the wake of the Brexit vote, bond markets have nose-dived with both sovereign and corporate yields at record lows.

“The fall in corporate bond yields over the last two months has now broadly matched the fall in gilt yields. This means that both the measure of deficit used for reporting in company accounts, as well as the deficit figure used by pension scheme trustees as a basis for determining cash contribution requirements are now likely to be considerably higher following the Brexit vote,” said Mercer's Ali Tayyebi

However, the regulator urged pension trustees not to make any knee-jerk reactions through their negotiations with sponsoring companies, reiterating its post-Brexit advice.

"Pensions are long-term investments and we urge trustees not to make significant decisions based on short-term market volatility. However, they should work closely with their sponsoring employers to consider any material risks to their scheme and take action where necessary," a spokesman for the Pensions Regulator said.

Read more: One in seven pensioners is now working through their retirement

Moreover, as the data released is aggregated further caution should be exercised according to Mercer's Le Roy van Zyl. Deficits could be worse on a company by company basis.

"The aggregate size of the pension scheme deficits glosses over the fact that some schemes and sponsors will have been much more affected than others, depending on their investment strategy and the nature of the sponsor’s business.

“It is clear that the continued uncertainty following the EU referendum makes it a challenging environment to operate a pensions scheme in,” he said.

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