Pension Funding Deficits at UK-Listed Companies Hit £67 Billion as Yields Drop

September 12, 2019 | Alternative Investments
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Pension funding deficits at defined benefit pension plans for the top 350 listed companies in the UK touched a two-year high in August

Pension funding deficits continue to balloon this year. According to consulting firm Mercer, funding deficits at these pensions bloated by £16 billion to £67 billion as of August 30 from £51 billion in July.

As a result, funding level dropped from 94% in July to 93% in August.

This was the second consecutive month in which the deficit has risen.

Reduction in corporate bond yields the culprit

The increase in deficit was largely on account of a decline in corporate bond yields, said Maria Johannessen, a partner at Mercer.

Charles Cowling, actuary, warned that schemes faced substantial risk from falling interest rates as well as political volatility from Brexit.

Cowling also warned of President Trump’s increasing pressure on the Fed to cut rates more aggressively.

Across the pond

In the United States, funding deficits at the hundred largest US corporate pension plans zoomed to $306 billion in August.

According to actuarial and consulting firm, Milliman, the funded ratio fell to 83.8% from 87.7% in July.

The firm further attributed the burgeoning deficit to a sharp drop in benchmark corporate bond interest rates. Finally, increasing exposures to alternative investments may be one way to improve returns at these pension funds.

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