UK pension schemes plunged into deficit on aggregate in October following a High Court ruling on equal pension rights.

The defined benefit (DB) schemes of the UK’s 350 biggest listed companies had a combined estimated deficit of £36bn (€41bn) at the end of October, compared to a £3bn aggregate surplus a month earlier, according to Mercer.

Total liabilities rose by £21bn, Mercer said, with nearly three quarters of this attributed to the impact of a UK High Court ruling on guaranteed minimum pension (GMP) payments.

The ruling related to the Lloyds Banking Group pension schemes but many other DB funds are expected to have to recalculate benefits and potentially make payments in arrears, after the court said GMP payments were subject to EU equality laws and so could not be paid at different ages for men and women.

Combined assets fell by £8bn, due in part to falling equity markets. The FTSE All Share index fell by 5.1% during October, while the MSCI World index fell by 5.6% in sterling terms.

Adrian Hartshorn, senior partner at Mercer, said: “Preliminary analysis following the Lloyds High Court judgment has suggested an increase to liabilities of between £15bn and £20bn, with the additional costs potentially flowing through the P&L account.

“While the onus is on individual trustees and sponsors to understand the particular circumstances of their scheme and act accordingly, our analysis suggests that there is a once in a lifetime opportunity to simplify schemes, reduce ongoing administration costs and reduce buy-in and buyout costs for schemes that follow that path.”

LeRoy van Zyl, DB strategist and partner at the consultancy, said pension funds were continuing to derisk their portfolios and crystallise investment profits.

“The need for taking selective action was demonstrated again during October as markets stepped back significantly from previous gains,” Van Zyl said.

“With the continuing backdrop of uncertainty likely to persist in the run up to the UK’s departure from the EU early next year, trustees should evaluate the potential impact on their sponsor’s financial security and put themselves in a position to capitalise on derisking opportunities as they arise.”

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