The accounting deficit of DB pension schemes for the United Kingdom’s largest 350 companies has nearly doubled in the past year.
“The sharp fall in both corporate and government bond yields to historic lows during the second half of the year has resulted in a sharp rise in pension scheme deficits,” says Ali Tayyebi, a senior partner in Mercer’s retirement business.
The deficit increased to £107 billion ($191.8 billion) at the end of 2014, from £56 billion at the end of 2013.
While the recent fall in yields may cause many pension schemes to review the hedging of their interest rates, schemes should be open to the opportunities that volatility provides, he adds.
Mercer notes that market conditions are not preventing risk transfer activity.
In 2014, the completed buy-in and buyout insurance company transactions and longevity swaps amounted to £11 billion and £24 billion of liabilities, respectively, which was more than any other previous year.
Read: