Defined benefit (DB) schemes at the UK’s largest listed companies remained stable in 2021 despite a “strange” year, according to the latest data.
Mercer’s pension risk survey finds that the book deficit in DB pension schemes for the 350 UK companies listed on the FTSE ended the year at £76bn. This compares to £70bn in 2020. Liability values were little changed from £914bn to £913bn, but asset values fell slightly from £844bn at £827 billion.
“Anyone comparing December 2020 to December 2021 would conclude that UK pension deficits were stable and smooth,” said Tess Page, head of Mercer UK Wealth Trustee. “However, this belies the difficult run of the period – 2021 has been another strange year, and we’ve seen bond yields and investment markets jump a lot, and considerable debate about future inflation.
“That said, given the ongoing pandemic and considerable economic uncertainty, programs have arguably succeeded so far with relatively little damage. As for 2022, we see imminent risks. »
Mercer warns that future monetary policy is far from clear, with the recent global rise in inflation raising questions about central bank action. Rising inflation could also intensify political and socio-economic tensions between “winners” and “losers” from the pandemic, undermining market confidence in central bank independence.
The COVID-19 pandemic remains a complicating factor, Mercer warns, with many companies experiencing “very significant shocks” that threaten the strength of employer commitment available to support the pension plan.
“Administrators will need to closely monitor the strength of employer commitments and we may see more calls on the Pension Protection Fund in 2022, particularly as government support programs run out of steam,” added Page.
“Overall, while some pension plans have kept their heads comfortably above water in 2021, others are barely keeping afloat. Plans that have not yet managed their material risks – including inflation, interest rates and growth asset risk – will see volatile movements in the level of funding from month to month.