Pension deficits at the UK’s largest companies nearly doubled over the past year to exceed £100bn, as record low interest rates continued to take a toll.
The combined accounting deficits for FTSE 350 companies with final salary pension schemes ballooned from £98bn to £107bn between November and December, compared with £56bn a year ago, a survey published by pension consultants Mercer found.
Consequently, funding levels — or the ability of schemes to make payments as promised to members of final salary plans — reduced from 86 per cent to 85 per cent over the same period.
Mercer said the deterioration was “substantially” driven by a further fall in corporate bond yields, which are used to measure the pension liabilities reported in company accounts.
“The sharp fall in both corporate and government bond yields to historic lows during the second half of the year has resulted in a sharp rise in pension scheme deficits,” said Ali Tayyebi, a senior partner at Mercer.
According to the Mercer estimates, pension assets held by the top 350 UK companies rose £2bn to reach £608bn between November and December last year. But over the same period liability values rose £11bn to £715bn.
