FTSE 350 companies’ ability to support their defined benefit (DB) obligations has fallen for the first time in more than three years, driven by a sharp decline in inflationary expectations, and continued wrangling over Europe’s finances affecting gilt yields.
PwC’s Pension Support Index shows a 3 point decrease since 2014 to 80 out of a possible score of 100, despite a period of improving company performance. The index tracks the ability of FTSE350 companies with DB pension schemes to meet their collective pension obligations, indicating the overall level of employer support available.
Continued uncertainty over gilt yields, often used to value pension liabilities, led to the first decline in the index since September 2011 and raises questions over pension scheme investment strategy.
The question of support for pension obligations has become increasingly important in light of changing market conditions. Ballooning deficits may lead to higher demand for cash from pension scheme trustees, which could lead to increasing demand for alternative non-cash funding mechanisms, such as Asset Backed Contributions (“ABCs”).
In this short video, Jonathon Land, Jeremy May and Simon De Young discuss the reasons behind the drop in the PSI score and what pensions companies and trustees should do about it, how ABCs can help, as well as the outlook for gilt yields.