British company pension deficits soar past 230 billion pounds - report
By Sarah Mortimer | November 8, 2012 6:00 AM EST
The total deficit of British final-salary linked company pension schemes more than doubled to 231 billion pounds in the space of a year, a report said on Wednesday, highlighting the impact of rock-bottom bond yields.
The Pension Protection Fund (PPF) calculated that the aggregate deficit of 6,316 so-called defined benefit schemes - representing about 12 million members - had shot up from 78.3 billion in March 2011.
"Things have got much worse for defined benefit (DB) final salary pensions," said Mel Duffield, head of research at the National Association of Pension Funds (NAPF).
"Our fear is that the firms might decide to close these pensions altogether, further undermining the UK's ability to save for its old age," Duffield said.
Benefits under these DB schemes are pre-determined using a formula based on salary and duration of employment.
Repeated rounds of central bank easing have contributed to a sharp drop in the yield on British government gilts - a staple investment for pension funds - making it more expensive for funds to match income to liabilities unless they add riskier, higher-yielding assets to portfolios.
"Pension funds urgently need help to deal with this difficult environment. The Government should encourage the Pensions Regulator to allow them to make a temporary uplift to discount rates based on gilt yields," said Duffield.
Funding levels of pension schemes are determined by a variety of factors, including economic growth, equity market returns and yields on UK gilts. Pension funds are willing the markets to improve to alleviate pressures on their deficits.
But gilt yields fell below 2 percent, pushing the funding ratio in DB pension schemes - their assets divided by their liabilities - down to 77 percent since March, despite a small pickup in equity market, the report said.
In April, the Pensions Regulator, which oversees the funding commitments of pension funds, rejected calls to make allowances for UK pension funds to help alleviate the impact on their coffers from repeated rounds of quantitative easing from the Bank of England.
(Editing by David Holmes)
Most Popular Slideshows
- Kate Middleton First Official Solo Trip: Details For Malta Tour Revealed [PHOTOS]
- 2014 MTV Video Music Awards: Full List Of Winners, Miley Cyrus ‘Wrecking Ball’ Bags Video Of The Year [PHOTOS]
- Manny Pacquiao Vs. Chris Algieri World Tour Kick Off Press Conference In Macau [PHOTOS]
- Kate Middleton’s Mom Accused Of Being A Social Climber, Prince George Not Seen By Relatives
Join the Conversation
- Tourre on stand says email in SEC case 'not accurate'
- Syrian authorities blocking access to needy in Homs - Red Cross
- Faith in European Union at low ebb, EU poll says
- Former UBS banker gets 18 months, $1 million fine, for muni bid-rigging scheme
- U.S. judge halts challenges to Detroit's bankruptcy bid
- Apple on iPhone 6 Release Date One Week After September 9 Despite Display Shortage Starting $800
- James Foley Video Had A Change Of Actor – Expert Points Out
- Canada Concerned About Russia’s Military Expansion in Arctic
- Nokia X2 vs. Nokia Lumia 530 - Specifications, Features And Price Showdown
- Trending: Ice Bucket Challenge Replaced By Rubble Bucket Challenge By People Of Gaza
- Hundreds of Men Rape Teen for Three Years
- Nexus 6 Release Date Will Intro Android 5.0 aka Lemon Meringue Pie with Killer Specs & Features