The 2019 version of our annual report on the impact of defined benefits pension schemes on company accounts has been published. You can find the report here.
We talked in our previous post about some of the things that might have an impact on the aggregate deficit of the FTSE350, in particular discount rates, mortality assumptions and GMP equalisation. Sure enough, the trends coming out of the data were higher discount rates and lower life expectancies, both of which reduced the pension liabilities of FTSE350 companies. This meant that over 46% of companies reporting at the end of 2018 were showing a surplus in their accounts, and our estimate of the combined position of all FTSE350 companies was also in surplus at that point.
Acting in the other direction was the increase in pension liabilities due to GMP equalisation. An often quoted rule of thumb in the immediate aftermath of the High Court ruling was that the impact might be expected to be something in the range of a 1% to 3% increase in liabilities. However, when the detailed calculations have been done, it appears that for many companies things are not as bad as first feared – the average was an addition of 0.6% to liabilities. But that’s still around £4bn of extra pension liabilities for the FTSE350 as a whole.
So what’s happened since the year end? As you can see from our Pension Deficit Index, the index has generally shown a position of relative balance for the first half of 2019, although this has tailed off into a deficit as volatile market conditions have taken hold in the last couple of months. Much of the deterioration is linked to the fall in corporate bond yields, which have reduced by more than 0.8% pa since the end of June, touching record lows in early September. Looking ahead, it will be interesting to track the changing market conditions and their impact on pension liabilities as we move towards the 31 October Brexit deadline.