Figures that were released last Monday have revealed that the pension deficit of the 350 biggest firms in the United Kingdom tumbled by an enormous £16bn over the course of last month.
In only a month, the pension gap of the FTSE 350 dropped to £34bn, having already been reduced from £72bn at the beginning of the year, and by £156bn in September 2016.
Mercer, a Human resources consulting company that collated the figures, said that the decline could be attributed to the combination of increasing asset prices and a slight fall in liabilities.
Asset valuations grew by approximately £15bn to £791bn, while liabilities were reduced by £1bn to £825bn, because of a decline in the expectation of inflation that was offset by lower corporate bond yields.
The number relates to approximately half of all pension scheme liabilities in the United Kingdom and is calculated by using the same approach that firms have to adopt for their corporate accounts.
The partner and chair of the Defined Benefit Policy Group of Mercer, Alan Baker, said that the drop of the figures was “great news.” However, he added that firms in the United Kingdom could not afford to be complacent.
He warned: “Market swings could dramatically reverse these improvements and have done so in the past.”
He added: “Therefore, it’s important that trustees and sponsors understand the risks they’re exposed to and have the right strategies in place to lock in these gains.”
The partner and strategy advisor at Mercer, ‘Le Roy van Zyl, stated:
“While this is more welcome news, recent market volatility sparked by the political situation in Italy serves as a timely reminder of the speed at which things can change. We increasingly see schemes having an action focused risk and cost management plan.”
He continued: “Such a plan will be clear on the conditions under which specific activities will be warranted, e.g. member options, insurance market solutions, and cashflow matching asset strategies. Increased market uncertainty, as we are seeing at the moment, then feeds into this plan and consequently the sequence of activities.”