The accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased by £10billion in just five days, following the cut in the bank base rate last week.
The aggregate deficit spiked from £139bn at the end of July to £149bn on August 4 following the Monetary Policy Committee’s decision, according to the Mercer Pensions Risk Survey.
Asset values rose by £4bn to £721bn over the same period, but liability values were £870bn, an increase of £14bn on five days earlier. Both pension liabilities and deficits reached their highest level since Mercer started monitoring deficits on a monthly basis.
Ali Tayyebi, senior partner in Mercer’s retirement business, said: “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.”
He added: “Asset values are around 12per cent higher than they were a year ago but the ratio of assets to liabilities has reduced from 89per cent to 83per cent and the deficits have increased from £81bn to £149bn over the same period.”
The report said a recession would have a "significant" effect on some pension scheme finances, depending on a scheme's investment strategy and the nature of the sponsor’s business.
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