UK- Almost two thirds of the UK’s larger pension funds are now in deficit according to a new survey by Mercer Human Resource Consulting. The study looks at 59 FTSE 250 companies’ accounts recently published under the new FRS17 accounting standard.
It reveals a wide range of funding levels with 64% of funds in a position of deficit. In more than a third of cases, the deficits exceed 10% of liabilities. Of the companies surveyed, three out of ten say they provide new entrants with defined contribution schemes.
A further 15% provide a mixture of defined contribution and defined benefit while 55% continue to focus on defined benefits.
Tim Keogh, European partner at Mercers, says: “what’s interesting is the increasing prevalence of a mixture of scheme designs within one company, with a significant number now offering a combination of defined benefit and defined contribution provision for new employees.
“Some set entry criteria for defined benefit plans by age, seniority or years of service. Others will leave choice of scheme type to the employee, or offer benefits based on career average pay rather than on a final salary basis.”
Other findings include the fact that more than one in three companies have pension funds assets greater than 50% of the company’s net assets while for one in six the fund actually exceeds corporate assets.
Says Keogh: “the figures show very clearly that, for a significant minority of companies, pension scheme management is a major business activity in its own right. In some cases the business is more like a pension fund with a company attached rather than a company with a pension fund. It’s important that the risks are managed accordingly.”
Mercer’s survey also highlights a significant shift away from equities with one on five funds having less that 60% of their portfolios in equities. Mercers says that this compares with just a few years ago when few companies allocated less than 75% of their funds to equities.
Andy Green, Mercer’s head of investment strategy said: “there has been a shift towards higher bond allocations over the past two or three years. Increasingly we are also seeing employers looking to reduce the impact of short term equity volatility on their FRS17 disclosures, by diversifying risk across a broader range of asset classes.”