Belfast Telegraph

Pensions shortfall drastically increases

By Nicky Burridge

The funding position of pension schemes deteriorated during May due to a combination of falling stock markets and rising liabilities, new figures show.

The UK's more than 7,300 defined benefit schemes, including final salary pensions, collectively faced a shortfall of £41.5bn at the end of the month, according to pensions safety net the Pension Protection Fund.

The figure represents a significant deterioration on the previous month, with pension schemes only £2.2bn in the red at the end of April.

The worsening of their financial position was caused by a 1.9% drop in the value of schemes' assets during the month, due to falling equity markets.

At the same time, a change in gilt yields increased the value of the liabilities they face by 2.1%.

The combination of these factors dragged nearly 400 pension schemes that had been in surplus into deficit, leaving 74% of all defined benefit schemes facing a shortfall.

But the funding position of all pension schemes is still better than it was a year ago, when they collectively faced a deficit of £179.3bn.

About £71.2bn of the improvement was caused by the introduction of new accounting assumptions in October last year.

But schemes also saw a 15% jump in the value of their assets, mainly due to strong stock market rises, more than off-setting the 3% rise in liabilities.

The majority of companies have now closed their defined benefit pension schemes to new members, with many closing them to existing ones as well, as rising life expectancy and investment volatility have made the schemes increasingly expensive to offer.

They are being replaced with less generous defined contribution schemes, under which the individual, rather than the company, shoulders all of the risk.

Belfast Telegraph