Final salary pension funds plunge by another £1.2bn

Published on Saturday 22 May 2010 14:18

SCOTLAND'S largest company pension schemes have plunged into the red by a further £1.2 billion since the start of 2010 alone, figures seen by Scotland on Sunday have shown.

The shortfalls of final salary pension funds run by big businesses north of the Border rose from 9.4bn at the end of last year to 10.6bn four months later, according to data from Buck Consultants.

They have notched up the extra deficit despite the stock market rising by around 4 per cent in that period.

Buck said corporate bonds had rallied too – by 5 per cent. Yields fall as prices rise and these yields are used to calculate pension scheme funding: the lower the yield, the greater the assets required to meet liabilities.

Buck, the global employee benefits and human resource consulting firm, said the drop in corporate bond yields was offset slightly by a small decrease in the expected rate of inflation, but the liabilities of big Scottish pension funds rose by some 2.2bn.

Fraser Smart, a director at Buck, said: "The global financial meltdown has left pension schemes wallowing in deep deficits – an issue which Scotland has failed to evade."

He said that while stock market movements were beyond the control of pension fund trustees, they could "certainly do more to resuscitate their balance sheets and mitigate the increasing deficits."

A growing number of firms are opting to offload the risk posed by pension fund members living for longer by transferring liabilities to an insurance provider.

"Recent high-profile participants in such transactions, such as BMW, have helped to further highlight this solution, which helps to mitigate liability, reduce costs and clean up balance sheets," said Smart.

"(It] should be a viable option for (other] companies."