Value of pension schemes rises by £100m

Published on Friday 21 March 2008 20:14

DESPITE the current economic turmoil, movements in markets from the end of February to 19 March have actually added to the value of Scotland's biggest company pensions schemes.

Over that period, there has been an improvement of 100 million (0.2 per cent) in the funding position of the pension schemes of Scotland's largest companies.

The overall growth for the year to date is 2.1 per cent, worth 900 million, according to analysis by Buck Consultants, a human resources consultant. However, the huge volatility in the markets could easily change the position on a day-to-day basis.

For example, on 17 March, the market turmoil on the back of the Bear Stearns crisis in the United States resulted in a 700 million fall in funding levels. This is a clear sign of the potential impact of the credit crunch on company pension schemes. Buck said the growth in Scottish company pensions in the first half of March was the result of an estimated decrease in asset values of 2.2 per cent being more than offset by an increase in the corporate bond yield of 0.23 per cent, resulting in a 2.4 per cent fall in liabilities.

For the year to date, the improvement is the result of an increase in the corporate bond yield of 0.79 per cent resulting in a 8.2 per cent fall in liabilities, partially offset by an estimated decrease in asset values of 6.2 per cent.

Buck said it was important to appreciate that these movements are purely in accounting terms and one of the consequences of the ever-widening spread between gilt and corporate bond yields as a result of the credit crunch.

This year, the differential has widened from 1.3 per cent to 2.3 per cent. The companies included in the calculation are the top 32 in the country, according to The Scotsman's share index and only private sector schemes have been included. Buck's figures are "broad brush" and based on certain assumptions.