Plunging stock markets wreak havoc with final-salary pensions

Published on Monday 10 November 2008 21:39

FINAL-SALARY pension schemes slipped further into the red last month as plunging stock markets sent asset values plunging.

The UK's final-salary (defined benefit) schemes had a collective deficit of 97.3 billion at the end of October, according to the Pension Protection Fund (PPF).

The figure compared with a September deficit of 80.3bn and a 84.1bn surplus in October last year.

Of the 7,800 schemes evaluated by the PPF, 84 per cent were in deficit, to the tune of 122.1bn. In October 2007 the aggregate deficit of all schemes in deficit was just 36.9bn. Of those in surplus, the total surplus fell to 24.7bn, compared with 121bn a year ago.

Total scheme assets fell 6.7 per cent month-on-month to 716.2bn in October and were down 19.1 per cent over the year.

"Over the past year, the falling equity markets and bond yields have led to an overall worsening of the funding position," said the PPF. "Lower bond yields resulted in a 2.2 per cent increase in aggregate liabilities, while weaker equities have reduced assets by 20.9 per cent."

Rising deficits do not directly affect members as final-salary pensions are based on length of service and end-of-career earnings. But more schemes are closing their doors to new members as companies increasingly struggle to fund contributions.

"In the last two or three weeks alone we have seen more Scottish businesses closing to future accrual," said Gerry Devenney, principal at Punter Southall in Edinburgh. "Companies are battening down the hatches and trying to protect jobs but at the expense of pensions."