Pension plans' shortfall doubles

Published on Tuesday 30 June 2009 21:36

THE funding shortfall faced by the UK's biggest defined benefit pension schemes nearly doubled during June, figures published today show.

Research has found that the country's 200 largest defined benefit schemes, including final salary pensions, had a collective deficit of 73 billion at the end of the month.

According to Aon Consulting, the shortfall had soared by 80 per cent during the month, largely on the back of falls in corporate bond yields, which increase the liabilities faced by pension schemes.

Schemes have now seen the value of their assets dive by 50 billion since the early stages of the credit crunch in September 2007.

The group warned that the current volatile investment conditions were increasing the pressure on companies to move money out of high-risk investments such as equities.

It added that changes to pensions accounting legislation and proposals that levies to pensions safety net the Pension Protection Fund should reflect a scheme's investment strategy were also likely to cause a move away from shares.

Sarah Abraham, consultant and actuary at the firm, said: "Whilst market volatility coupled with changes to legislation may increase the pressure on trustees to move out of equities, trustees and sponsors must think carefully before eliminating too much of their equity exposure.

"It should not be forgotten that these assets still have significant advantages for pension schemes."