Defined benefit (DB) pension schemes in the UK saw their deficits expand marginally last month while funding levels remained static, according to data from consultancy Mercer.
Funding levels for the 350 largest DB pension schemes in the UK stood at 83% at the end of April, unchanged from the end of March, while the schemes’ accounting deficits rose to £128bn (€172bn) from £127bn, Mercer’s monthly pension risk survey showed.
Asset values fell by £4bn between the end of March and the end of April, to stand at £625bn, while liability values were down £3bn at £753bn.
The company said that, even though liability values had fallen during the period — driven by a rise in corporate bond yields — this had been offset by the fall in asset values.
Ali Tayyebi, senior partner in Mercer’s retirement business, said: “The deficit remained substantially unchanged during April.”
He said this masked quite big changes in corporate bond yields and market implied inflation over the one-month period.
“This month, they happen to have had broadly opposite effects on the calculation of the liabilities,” he said.
Tayyebi said this volatility was a continuation of a trend seen over recent months.
Mercer said deficits at DB schemes had increased by almost 20% so far this year, and that it was disappointing for sponsors as well as trustees that the funding position was still weak.
It observed that certain parts of the investment market had done well during April – equities in particular – while others such as interest-rate reductions had been negative.
Le Roy van Zyl from the firm’s financial strategy group, said: “Dealing with the pension scheme risk at an acceptable cost is, therefore, very much about looking below the headlines.”
He said schemes had to look at the individual financial drivers, as well as respond to emerging opportunities and threats.