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Pension Funds

Mercer: 37% of U.K. pension funds now have a surplus vs. 27% in 2015 survey

U.K. pension funds have seen a significant increase in funding levels over the past three years, with 37% now in surplus positions vs. their funding targets, Mercer said.

The consultant's 2018 Valuation Survey, published Tuesday, showed the level of funds in surplus increased from 27% in its previous survey conducted in 2015.

However, 38% of pension funds have not agreed to a long-term funding plan, which Mercer highlighted as an issue since achieving a surplus is not the end of the story.

"One of the striking findings from the 2018 survey is the step change in the number of schemes in surplus on funding assumptions," said Simon Turner, director at Mercer, in a statement accompanying the survey results. "However, having a surplus against a funding target is rarely the end of the journey. Trustees and sponsors need to set and agree (to) longer-term objectives to improve the chances of paying members' pensions as they fall due."

Of those that have agreed to long-term strategies, 41% said they are targeting a cash flow-driven strategy supporting self-sufficiency; 38% are looking at buyouts or buy-ins; 8% are looking at a long-term low-risk strategy; 5% are looking at a mixture of buy-in and cash flow-driven strategies; 4% are considering another self-sufficiency approach; and the remaining 4% said they are taking another approach. Comparative figures for the 2015 were not immediately available.

More than half of the pension funds had carried out specific analysis on the life expectancy of participants, according to the 2018 survey, compared to less than one-third in 2015.

The 2018 survey covered 180 pension funds, vs. 193 in the 2015 survey.