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Pensions deficit 'to soar past £100bn'

The funding shortfall faced by the UK's biggest pension schemes has soared to £100bn and looks set to get worse during the coming year, research suggested.

The 200 largest defined benefit pensions, including final salary schemes, had a deficit of £100bn at the end of June, up from one of £88bn in May, according to consultancy firm Aon Consulting.

The group warned that the austerity measures announced in the Budget were likely to further add to the funding problems pensions schemes faced in the short-term.

It said a reduction in the number of gilts issued compared with previous expectations, combined with slower economic growth, was likely to lead to reduced gilt yields, upon which pension scheme liabilities were based.

Aon calculates that a 0.5% fall in gilt yields over the coming year would cause defined benefit pension scheme deficits to soar by £43bn to £143bn.

But although the Budget is likely to be bad news for pension schemes in the short term, the group said over the longer-term the tough economic measures taken were likely to improve financial conditions, which would benefit pension schemes.

It estimated that if gilt yields rose to 1% above their current level, this would reduce the deficit pension schemes faced to just £25bn - a quarter of the current level.