UK – Mercer has lamented the “yo-yo effect” of markets as it published figures showing that deficits in UK defined benefit (DB) schemes had once again risen over the month.

The average IAS19 deficit for the DB schemes of FTSE350 companies stood at £79bn (€93bn) – equivalent to a funding ratio of 87% – at 31 March 2013 against £68bn a month earlier, the consultancy’s latest Pensions Risk survey said.

However, the estimated value of underlying pension scheme assets increased from £544bn at the end of February to £552bn at the end of March.

The consultancy attributed the drop in the funding level to a strong equity market rally in February, while the increase in asset value stemmed from the decline in corporate bond yields and the corresponding increase in scheme liabilities.

Ali Tayyebbi, head of DB risk in the UK, added that this “yo-yo effect” demonstrated the extent of current volatility in markets and funding levels.

“It also demonstrates the opportunities available if you have the appropriate governance processes in place to take advantage and lock in gains,” he said.

“Trustees and companies need to work together in order to align objectives and agree a strategy for financing scheme liabilities.”

According to Tayyebbi, volatility means that funds with a pro-active and dynamic asset allocation strategy could now be several percentage points ahead, in funding level terms, of those that don’t have such structures in place.

Meanwhile, JLT Employee Benefits has said 2012’s last quarter saw £1.5bn of buyout deals, bringing the total business written during the year at more than £4bn.

The consultancy’s report also suggested that the momentum seen in Q4 2012 would been maintained into 2013, particularly at the small and medium end of the market as insurers continue to offer flexible contract structures and payment terms.

JLT predicted that more than £6bn will be transacted during 2013, which would represent a 50% rise on 2012.

Finally, the £1.5bn Buckinghamshire County Council Pension Fund has appointed BNY Mellon to provide global custody services.

The contract, which is worth £912,000, will include safekeeping of assets, trade settlement, tax collection, corporate actions, proxy voting, investment accounting, performance measurement, foreign exchange and cash management.

Topics