Reduced longevity estimates see deficits fall £100bn in March
The funding level of defined benefit (DB) schemes improved by five percentage points in March on the back of a reduction in mortality improvements, JLT Employee Benefits has estimated.
At the end of March, the combined deficit of all UK schemes was £172bn on the IAS 19 accounting measure, down from £270bn at the end of February, according to the firm's monthly tracker. Liabilities sat at £1.7trn, while assets were recorded at £1.6trn, resulting in a funding level of 90%.
Similarly, for FTSE 350 companies, there was a 92% funding level, up from 87% at the February, with a deficit of £67bn. Assets and liabilities totalled £746bn and £813bn respectively.
The improvements were driven by reduced longevity estimates in the Continuous Mortality Investigation's (CMI) tables for 2016, which JLT factored in.
JLT Employee Benefits director Charles Cowling said both the mortality figures and calm markets had led to the fall.
"The latest mortality tables published by the independent experts at the CMI last week showed that we are not living quite as long as had been predicted a few years ago," he said. "This potentially could have a huge impact on pension schemes and we have responded by reducing our estimate of the total deficit in UK private sector pension schemes by more than £60bn at the end of March.
"In a period when Article 50 was triggered and many voices of doom had predicted chaos in markets and more trouble for pension schemes, we have in fact seen fairly calm markets and a boost to pension schemes in the form of these latest mortality tables."
Separately, Mercer's Pension Risk Survey for March also saw a reduction in deficits on the IAS 19 measure, although the firm had not factored in the mortality figures. The firm, which analyses around 50% of FTSE 350 pension schemes using data from company accounts, recorded a markedly smaller deficit reduction than JLT.
In its tracker, Mercer said deficits had fallen from £137bn at the end of February to £133bn on 31 March. At the time, assets totalled £739bn, up from £735bn, while liabilities stayed the same at £872bn.
Partner Le Roy van Zyl said the small movement was largely due to markets having prepared for the start of the Brexit negotiations.
"The triggering of Article 50 in the end had very little impact on pension scheme deficits, given that markets had already anticipated events," he said. "The key drivers are now how the Brexit discussions proceed, and how the UK and world economy progresses.
"Pension deficits will be sensitive to emerging conditions, and unexpected developments can lead to significantly volatility. To some extent, it will be surprising if there are not material surprises in the months and years to come. Scheme trustees and sponsors must therefore be ready and able to weather any storms and take advantage of any opportunities."
- PwC's SkyVal Index: £340bn combined deficit on the IAS 19 measure across all private sector DB schemes
- JLT Employee Benefits: £172bn combined deficit on the IAS 19 measure across all private sector DB schemes
- Mercer: £133bn combined deficit on the IAS 19 measure across FTSE 350 DB schemes
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