FTSE 100 pensions switch to surplus despite financial crisis

September saw pension deficits wiped off the books for the for top 100 UK firms, despite the 12.5 per cent fall in the FTSE 100 recorded for the month.

Estimates of UK pension scheme deficits by Watson Wyatt show the £12 billion deficit recorded at the end of August has turned to a £30 billion surplus a month later.

The return to surplus is partly connected to the accounting behind the health of pension schemes.

The fall in share prices has been outweighed by the fall in gilt yields – which set expectations for inflation and how much pension schemes are expected to pay out.

John Ball, head of defined benefit consulting at Watson Wyatt, said: "It may seem counterintuitive to have what appears to be good news about pensions in a month of such financial drama.

"But it isn't just share prices that affect the surpluses and deficits that companies have to disclose on their balance sheets."

He added as well as changes to gilt yields, corporate bond yields have also aided pension schemes.

"Because AA corporate bond yields are used to convert a stream of projected payments into a single liability number, significantly higher AA corporate bond yields have made these liabilities appear smaller," he said.

"So, as far as the accountants are concerned, FTSE 100 pensions are back in surplus.

"However, what will matter more to most companies is the attitude of their pension plan trustees, who are unlikely to take such a sanguine view the current position."