Pensions black hole deepens to £2.9bn

Published on Saturday 14 March 2009 13:16

SCOTTISH final salary pension scheme shortfalls have rocketed by £1.1bn since the start of the year on the back of continued market turmoil.

Analysis by Buck Consultants has revealed the deficit faced by Scotland's biggest companies has widened to 2.9bn since 2009. A decline in the value of equities and corporate and Government bonds is being blamed for the spiralling shortfall.

Fraser Smart, director of northern region at Buck, said: "The continued market volatility demonstrates the sensitivity of pension scheme deficits to changes in market conditions."

He added that the asset value fall has resulted from the UK stock market dropping by around 12% and a decline in the value of corporate and fixed-interest Government bonds of 5% and 10% respectively.

"It is clear that volatility in the markets has continued into 2009 and it is difficult to predict how they will move, even in the very short term, given the global meltdown."

Experts are warning that the Government's decision to introduce quantitative easing, or print more money, will increase the volatility of pension funding.

Danny Vassiliades of actuarial firm Punter Southall said the Government's move to reduce debt would dampen the value of corporate bond yields. One consequence of this will be a rise in the value of pension fund liabilities.

He said: "In this kind of scenario, pension funds will find it difficult to steer a sensible path through the changing economic conditions. Many employers will just give up, fed up at being at the mercy of Government policy. The future could well be even more volatile than the present."

More companies are expected to close their final salary schemes and switch to less expensive defined contribution schemes where employees have no guarantee of how much they will receive when they retire. Take-up of such schemes has been lower than the Government would like, and, to encourage more of the population to save for retirement, it is launching personal accounts in 2012.