Deficit in pensions at firms falls by £1.2bn

THE pension deficits at the largest Scottish firms were slashed last month as the cost of providing final salary pensions plummeted.

Figures obtained by Scotland on Sunday show that the country's biggest employers saw their final salary pension fund shortfalls shrink by 1.2 billion in May despite stock market falls that hit the value of pension investments.

The combined deficit of the final salary schemes at large firms in Scotland fell to 9.4bn last month from 10.6bn in April, according to employee benefits and human resources specialist Buck Consultants.

It said the change was a result of a reduction in liabilities caused by a drop in the expected future rate of inflation. With final salary pension benefits linked to inflation, lower inflation expectations mean companies have to put less aside to guarantee future payments.

The decrease was offset only slightly by lower bond yields – used to calculate the accounting value of scheme liabilities – and by a 7 per cent stock market plunge in May. However, the May deficit was still more than double the figure in the same month in 2009 because of a dramatic slide in corporate bond yields over the last year.

Fraser Smart, northern region director at Buck Consultants, warned against reading too much into last month's improvement, noting that markets remain volatile. "May was also a busy month for the markets, with various extraordinary factors affecting share prices and interest in gilts."

The figures were revealed just days after PricewaterhouseCoopers predicted a fresh wave of pension scheme closures due to the mounting cost of providing the pensions.