Pensions deficits have grown at a rate of £2bn a day since rate cut

Oliver Gill
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Pension scheme asset growth is outstripped by the pace of liability growth (Source: Getty)

The Bank of England's interest rate cut last week has already cost Britain's largest companies a further £10bn in order to manage their pension deficits.

According to data prepared by pension specialist Mercer, the aggregate deficit of the largest 350 listed companies has increased from £139bn go £149bn in the five days since Mark Carney's announcement to adjust Britain's base rate for the first time since 2009.

The aggregate change was a product of increases in asset values by £4bn, offset by an increase in liabilities by £14bn.

“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.

“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,” said ” said Ali Tayyebi of Mercer.

Read more: The pension conundrum: what to do with a problem called deficits?

Le Roy va Zyl, a financial consultant at Mercer, said that the tremors sent through the bond markets after the Brexit vote were still adversely impacting schemes.

"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,” he said.

There remains considerable debate as to what, if anything, needs to be done to address the soaring deficit levels. While "knee-jerk reactions" have been discouraged, sensible and open dialogue between trustees and sponsoring companies was once again underlined by va Zyl.

"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,” he said.

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