Sliding corporate bond yields keep DB deficits high

FTSE350 pension scheme deficits remained “stubbornly high” during January, hovering just above a combined shortfall of £80bn, data from Mercer shows.

The consultant's Pensions Risk Survey found the aggregate FTSE350 IAS19 defined benefit deficit was £83bn (equivalent to a funding ratio of 85%) at the end of January, compared to £84bn at 31 December, last year. The figure was £64bn at the end of December 2010.

While asset values increased from £478bn at the end of December to £487bn in January there was a broadly matching increase in the value of liabilities - £562bn at 31 December 2011 to £570bn as at 31 January. Mercer said this was due to a small reduction in corporate bond yields, which are used to discount scheme liabilities.

Pension risk group leader and senior partner Ali Tayyebi said corporate focus had been on year end positions not scheme deficits.

He said: "Nevertheless it is disappointing to see no improvement in funding levels over the first month of 2012, with deficits remaining stubbornly high following the deterioration during 2011. The changes in January highlight a number of factors at play driving the overall funding level.

"Although the FTSE100 increased by around 2% over the month, pressure remained on the liability side with AA corporate bond yields reducing even further over the month."

Mercer's data relates only to about 50% of pension scheme liabilities and analyses pension deficits calculated using the approach companies have to adopt for their corporate accounts.