UK Roundup: FTSE350 Pension Deficit Shrinks As Bond Yields Rise

The UK’s 350 largest listed companies recorded an accounting deficit for their defined benefit (DB) schemes of £41bn (€47bn) at the end of October, down from £50bn a month before, according to estimates from Mercer.

The values of liabilities and assets both fell, with a net positive impact overall on the schemes’ funded position.

Liability values decreased by £23bn, from £906bn to £883bn, while asset values stood at £842bn at the end of the month, down £14bn from the end of September.

Maria Johannessen, partner and corporate consulting leader in Mercer’s wealth business, said liability and asset values fell as corporate bond yields returned to the levels last seen in early August, while inflation expectations also declined.

“But again it was a volatile month, with the deficit ranging from £58bn to £24bn in the period,” she added. “Schemes that had structures in place to actively monitor their risk position would have had opportunities to bank some of these gains.”

The consultancy flagged the impact of Brexit uncertainty, with Charles Cowling, actuary at Mercer, stating that political turmoil in the UK was set to continue to cause nervousness and volatility in markets.

Mercer estimates the aggregate combined funded ratio of plans operated by FTSE350 companies on a monthly basis, including UK domestic funded and unfunded plans and all non-domestic plans.

Figures from PwC put the deficit of all private sector DB pension funds in the UK at £220bn, down by £70bn from the previous month. The consultancy’s Skyval figures index is based on a ‘Gilts-plus’ methodology it says is widely used by scheme actuaries. 

Government ‘actively considering’ cost transparency legislation consultation

The government has said it wants to promote further uptake of cost transparency templates by all trustees and all investment managers, and is “actively considering” consulting on legislation to encourage their use.

Responding to a report from the Work and Pensions select committee, the government said the effect of the secondary legislation would be to provide for the calculation of charges and transaction costs by defined contribution (DC) schemes to be made using templates developed by the Cost Transparency Initiative (CTI).

It said it would also consult on whether such measures should be extended to DB pension scheme trustees, and if so, how this might be achieved.

“With our consultation proposals, we do not intend to penalise trustees who are unable to obtain the information in this format, but we expect asset managers to provide all the information that trustees need to make fully informed decisions,” it said.

The pensions minister has previously warned the UK could legislate to enforce new cost transparency codes if the voluntary approach did not yield satisfactory results.

The Work and Pensions Committee, which published the government’s and the Financial Conduct Authority’s responses to its report over the weekend, said the government had accepted some of its recommendations, but bemoaned it failing to commit to publish by the end of the year a timetable for the rollout of a non-commercial pensions dashboard, including state pension information.

Frank Field, chair of the committee, said the government was “missing a trick”.

In its response, the government reiterated its view that the pensions industry was best-placed to develop and deliver dashboards – online portals intended to provide individuals with an overview of all their pension savings – and described steps being taken to achieve this.

It said a phased approach both to the functions available on dashboards and the level of information provided was important.

According to the government the majority of pension schemes will be ready to go live with their data within a three to four-year window, which will be informed by the industry group driving work on the delivery of the dashboard-enabling technology.

The responses to the work and pensions select committees’ report can be found here.  

Private members’ bill introduced to cap PPF compensation payments

A bill was introduced in the House of Lords last week that aims to remove the cap on compensation payments made by the Pension Protection Fund and require pension scheme trustees and The Pensions Regulator to give their approval for companies’ distribution of dividends.

The private members’ bill was brought before the upper chamber of parliament by Lord Balfe, and seeks to amend the Pensions Act 2004 and the Companies Act 2006. It was introduced on Thursday, the day the first debate of the Pension Schemes Bill was originally due to take place before parliament voted in favour of an early general election.

David Robbins, director at Willis Towers Watson, told IPE that the bill had “virtually zero” chances of becoming law.

“It’s not being introduced either by the current government or explicitly backed by the Labour front bench or any other party that might be in government in a few weeks’ time,” he said.

Robbins also noted that Balfe had been a member of and left both the Labour and Conservative parties so “might not be best placed” to get other parliamentarians onside.