UK's 350 biggest firms lifted as pension gap tumbles by £16bn in May

Josh Mines
Inside The London Stock Exchange
The pension deficit of the UK's 350 largest companies fell by £16bn in just one month over May (Source: Getty)

The pension deficit of the UK's 350 largest companies tumbled by a huge £16bn over the course of May, figures out today have shown.

In just one month, the FTSE 350 pension gap fell to £34bn, having already been slashed from £72bn at the start of the year, and £156bn in September 2016.

Human resources consulting firm Mercer, which collated the figures, said the fall could be attributed to the combination of rising asset prices and a slight dip in liabilities.

Read more: FTSE350 DB pension deficit drops by £4bn in first quarter of 2018

Asset valuations increased by around £15bn to £791bn, while liabilities were shaved off by £1bn to £825bn, due to a fall in the expectation of inflation offset by lower corporate bond yields.

The data relates to around half of all UK pension scheme liabilities and is calculated using the same approach companies have to adopt for their corporate accounts.

Alan Baker, partner and chair of Mercer’s Defined Benefit Policy Group, said the figures drop was "great news," but added that UK firms could not afford to get complacent.

"Market swings could dramatically reverse these improvements and have done so in the past," he warned. "Therefore, it’s important that trustees and sponsors understand the risks they’re exposed to and have the right strategies in place to lock in these gains."

Le Roy van Zyl, partner and strategy advisor at Mercer said:

While this is more welcome news, recent market volatility sparked by the political situation in Italy serves as a timely reminder of the speed at which things can change. We increasingly see schemes having an action focused risk and cost management plan.

Such a plan will be clear on the conditions under which specific activities will be warranted, e.g. member options, insurance market solutions, and cashflow matching asset strategies. Increased market uncertainty, as we are seeing at the moment, then feeds into this plan and consequently the sequence of activities.

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