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Law360, London (November 3, 2020, 2:22 PM GMT ) Deficits in the workplace pension schemes of Britain's largest companies grew by £2 billion ($2.5 billion) in October, as trustees warned of "storm clouds" on the horizon from a second pandemic lockdown.
The combined shortfall in the defined benefit retirement schemes for the country's 350 largest companies listed on the London Stock exchange rose from £73 billion at the end of September to £75 billion by Oct. 30, professional consultancy Mercer said on Monday.
The rise comes after the deficit — the gap between how much a pension plan has to pay out and the money available — had begun to shrink from the record highs seen earlier this year, when the pandemic triggered significant falls in asset values. Defined benefit pension deficits for FTSE 350 companies were £41 billion at the end of October 2019.
"COVID-19 storm clouds are gathering again as markets prepare for a second wave of coronavirus and the impact wide-ranging lockdowns will have on global economic growth," Charles Cowling, chief actuary at Mercer, said.
The Office for National Statistics said in October that the country's gross domestic product was growing in August at 9.2% below its peak before the pandemic in February. Cowling said pensions plans should also keep a close watch on political developments.
"Various political uncertainties caused by the forthcoming U.S. presidential election and Brexit negotiations indicate further risk for pension trustees at a time when many employers are facing challenges and covenants are under big pressure," he added. "Trustees are therefore urged to monitor their situation wisely and seek opportunities to reduce risk where possible."
The U.K. is on track for the second-biggest year on record for bulk annuities deals and longevity swaps, as companies laboring under heavy deficits from workplace saving plans increasingly seek to offload liabilities to insurers.
Although 2019 was dominated by mega-deals, broker Aon said in August there had been a 20% increase in small to medium bulk annuity transactions this year.
Pricing for some types of bulk annuity transfers have been pushed down by 5% because of the impact of the COVID-19 outbreak on the financial markets, creating opportunities for struggling employers to transfer risk.
--Editing by Ed Harris.
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