The aggregate defined benefit pension fund accounting deficit for companies in the FTSE 350 increased 35% as of Dec. 31, compared with the end of 2012, to £97 billion ($158.9 billion), despite strong stock market returns, according to Mercer.
The deficit equates to a funding ratio of 85%, down from 88% a year earlier.
According to data from Mercer's Pensions Risk Survey, December's deficit was an improvement from November, when the aggregate deficit was £102 billion.
“Over 2013 as a whole it has been interesting to see how the three key elements which drive the deficit calculation have independently influenced the deficit,” said Ali Tayyebi, head of DB risk in the U.K. at Mercer.
Mr. Tayyebi said an increase in corporate bond yields in the middle of 2013 reduced the value ofpension fund liabilities, although a subsequent decrease pushed deficits up “by £20 billion over the second half of the year despite the U.K. stock market returning 10% over that period.”
Mercer said funding and solvency deficits, however, have improved, leading to an increase in buyout transactions and other liability deals.
“Looking forward into 2014, there are likely to be further transactions,” said Adrian Hartshorn, senior partner in Mercer's financial strategy group. “These will likely involve a further transfer of risk to the insurance market through more buyout and longevity transactions. However, there are also likely to be other transactions and exercises implemented by scheme sponsors, such as options that allow pensioners and deferred pensioners additional flexibility in the way they draw their benefits.”
