UK - Mercer has advocated the benefits of adopting a de-risking strategy following the volatility experienced over the last quarter.
In its latest quarterly FTSE 350 pension scheme deficit survey, Mercer said that despite extreme market volatility over the past three months, as at 30 September 2007,schemes remained relatively well funded with an aggregate funding level of 98% and a corresponding deficit of £9 bn.
The current FTSE 100 funding level is also at 98 percent, with a corresponding deficit of £6 bn,
However, while the current funding position may appear strong, Mercer warned that the recent volatility highlighted the risk which scheme members and sponsors are vulnerable to.
In mid-August, it noted that the aggregrate FTSE 100 pension deficit was as high as £30bn.
John Hawkins, principal in Mercer’s financial strategy group, said: “There would have been a substantial impact on company valuations if FTSE 100 companies had reported in mid-August. The data highlights the volatility of accounting deficits.”
He continued: "Any company adopting a de-risking strategy by switching from equity holdings into liability matching bonds at the end of June could potentially have improved their position significantly. This demonstrates the benefits of de-risking to scheme sponsors, in terms of funding and competitive positioning, and to members in terms of benefit security. It highlights the need for pension schemes to be prepared to capitalise on opportunities for de-risking as and when they arise.”
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