Mercer’s Pensions Risk Survey data shows that the accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased from £38bn at the end of November to £40bn on 31 December 2019. By the end of December, liability values were £882bn, the same value as at the end of the previous month. Asset values were £842bn (a decrease of £2bn compared to the corresponding figure of £844bn at the end of November). The 2019 year-end position showed a small fall in the overall deficit, from £41bn to £40bn, compared to the end of 2018, Liability and asset values both increased by around £95bn over the year.
Charles Cowling, Partner at Mercer, said: “2019 was a challenging and volatile year in politics and markets, but ended on a positive note with markets rallying, as uncertainty over Brexit settled somewhat.
“Although the general election result gives some clarity for markets, there is no denying the general weakness in the UK (and global) economy which means cuts in interest rates are likely. The Bank of England’s Monetary Policy Committee recently voted to hold interest rates at 0.75% but suggested rates may need to be cut if the global economic growth stalls or Brexit uncertainties persist. Inflation is expected to dip down to 1.25% in early 2020, which is positive news for pension schemes, though longevity may be on the increase again after a stalling in recent years.
Mr Cowling added: “2019 was a record year for the settlement of pension liabilities, with the final figures for buy-out deals likely to break through £40bn – smashing the previous record of £24bn in 2018. 2020 could be the year trustees finally manage to largely eliminate interest rate and inflation risks, and reduce longevity and equity market risks down to manageable levels.
Mercer’s Pensions Risk Survey 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.