Strong investment returns drove funding ratios of U.K. defined benefit pension funds of FTSE 350 companies up to 103% as of Dec. 31, from 93% a year earlier, according to analysis by Goldman Sachs Asset Management.
Investment returns of 9.5% over the year had the biggest positive effect on funding ratios of these plans, according to an analysis of the pension plans of the U.K.'s 350 largest companies.
In its inaugural analysis, GSAM said changes in discount rates added 5.6% to pension funding, while cash flows added 2.1%. However, changes in inflation slightly offset these gains by -3.3%, and management and interest costs of funds subtracted another 4.7%.
GSAM also looked at derisking trends within these portfolios and found that pension funds with less than £500 million ($816.2 million) of assets had not derisked as much as larger pension funds, with more than £1 billion of assets. For example, one small unnamed pension fund was at 120% funding but had zero allocation to debt, according to GSAM.
“We see large clients having a greater degree of resource, determining strategy and implementing it,” said David Curtis, head of U.K. institutional business at GSAM. “Smaller schemes typically meet less often, have less experience at scheme level and hence there are consequences to both governance and resourcing.”