A small silver lining has emerged from a worsening economic outlook: with long-term bond yields on the rise, the amount of cash that FTSE 350 companies will need to pour into their pension schemes to cover payouts has dropped to its lowest level in two years.
This is lightening the load for companies such as BT (BT.), Phoenix (PHNX), BAE Systems (BA.), FirstGroup (FGP) and AstraZeneca (AZ) – the index constituents with the largest pension deficits, according to Investors’ Chronicle analysis.
According to actuary Mercer, the 350 largest listed companies in the UK face a combined shortfall of up to £45bn in their pension schemes as of the end of April, as the £784bn expected cost of their pension payments outstrips the £739bn assets these schemes hold. This overall deficit has fallen by more than a third from £69bn a month ago at the end of March. “The main driver of the change has been the increase in bond yields,” said Tess Page, Mercer’s UK wealth trustee leader.