UK - Equity markets will have to rise by 40% to clear the aggregate pension deficit from the FTSE350 companies, new research shows.
The study – carried out for Axa Investment Managers by corporate adviser Barrie and Hibbert – shows the average FTSE250 scheme to be only 75% funded compared with 82% for FTSE100 companies.
The research estimates the total pensions deficit among FTSE350 firms at £75bn at the end of November – down from £135bn earlier this year.
But Axa Investment Managers and Barrie and Hibbert stressed there was still a “long way to go” to clear these deficits.
The report – New Solutions for Pension Fund Risks – claimed one-third of falls in deficits was due to increases in interest rates and the remainder to the rally in the equity markets.
Barrie and Hibbert director Andrew Barrie said: “There is a growing understanding that interest rates have as big a role to play as the equities market.”
Barrie and Hibbert calculated that a two percentage point rise in interest rates would put the FTSE350 aggregate deficit back in surplus – equivalent to a 40% rise in the equity market.
To put 90% of all pension plans back in surplus, the firms said interest rates would have to rise by 4% – equivalent to a 100% rise in the equity market.
Only 12% of funds had increased their equity exposure in the year to November 26 despite rallies in the stock markets.
Barrie added that there had been a “gradual move” from peer group benchmarks to customised investment strategy.
The survey also found more than a third of final salary schemes in the FTSE350 were closed to new members.
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