Pension scheme liabilities top £1 trillion
Tuesday, 01 September 2009 10:10
Company accounts are showing the UK's 200 largest privately sponsored pension scheme liabilities have reached £500 billion for the first time, according to research.
A study by Aon Consulting shows the deficit has reached a record high, with the total liability now topping £1 trillion.
Further, accounting deficits on the 200 largest final salary schemes have remained steady at £78 billion, despite the recovering equity market.
Analysts are claiming the skyrocketing liabilities are a result of decreasing corporate bond yields which spiked last year as a result of the credit crunch.
High returns previously masked the large accounting deficits but as levels are beginning to normalise again, the extent of the liabilities is becoming more visible.
"Liabilities have reached such a staggering high because they continue to balloon in the aftermath of the credit crunch," said head of corporate solutions at Aon, Marcus Hurd.
He added: "What's more, there could well be more bad news in the pipeline. Despite improving equity markets, the only real guarantee for pension funds is further volatility as gilts and bond yields are set to fluctuate."
A number of private pension schemes have closed recently, boosting the ability to manage future benefits. But Aon claims the closures do not impact members already receiving benefits.
"Closure is often the first step in pension scheme management, but the real benefits come after the high profile actions through a structured approach to removing and managing liabilities through risk management," continued Mr Hurd.
"The aim should be to ensure that all pension scheme members get the benefits they are promised, whilst minimising the burden on the company."
A series of firms have started taking action on their pension schemes - which much attention focused on a culling of final salary pensions.
A poll of 157 UK firms - including 33 FTSE 100 companies - by PricewaterhouseCoopers (PwC) this found as well as closing final salary, or defined benefit, pensions to new employees as many have done, 72 per cent were considering closing schemes to existing employees.
Both BP and Barclays have both moved to shake up their final salary pension schemes.
While five years ago 40 per cent of companies offered final salary schemes - promising a pension income based on the level of the final salary - now just four FTSE 100 firms - Shell, Tesco, Cadbury and Diageo - offer workers such pensions.
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