The funding position of the FTSE 350 defined benefit (DB) pension schemes decreased slightly on an accounting basis in July, falling from £85bn to £83bn, Mercer’s latest Pensions Risk Survey update has revealed.

The tracker showed that, despite "significant geopolitical events", including the results of elections in France and the UK and the withdrawal of Joe Biden from the US presidential race, FTSE 350 pension funds remained "resilient" in July.

According to the data, the value of liabilities for the FTSE 350 DB schemes increased from £589bn at the end of June to £603bn at the end of July, whilst asset values increased from £674bn to £686bn.

Mercer explained that while corporate bond yields fell in July, which led to higher liabilities, the market’s expectation for inflation fell and equity markets performed well, which partially offset the increase in liabilities.

However, Mercer warned that fears of a possible US recession have since impacted performance, as early August saw turbulence in financial markets following the release of weaker than expected US labour market data.

According to Mercer, the FTSE 350 surplus deteriorated by nearly £10bn between 5 August to 9 August.

Whilst it mostly recovered within a few days, Mercer highlighted this as demonstration of the impact market movements can have on defined benefit pension schemes’ accounting positions, emphasising the need for trustees to look at the robustness of their funding and investment strategies.

Mercer wealth corporate leader, Simon Turner, said: “Financial markets have successfully navigated through the French elections and changes in the US political election candidates in July 2024, however the sharp shock we saw early in August demonstrates that funding positions are still subject to volatility.

“Pension schemes should consider looking at the robustness of their funding and investment strategies to guide them through the run up to the US election in November.”

Mercer’s Pensions Risk Survey data relates to about 50 per cent of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach companies have adopted for their corporate accounts.

---