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July 1, 2009

Defined benefit pension deficit soars

by Gill Montia

Story link: Defined benefit pension deficit soars

The financial crisis has seen the combined deficit of the UK’s 200 leading defined benefit pension schemes increase to £73 billion.

New research from Aon Consulting shows the shortfall soaring in June, largely as a result of falling yields on corporate bonds.

According to Aon, defined benefit schemes are shifting investment strategies away from equities in response to volatile markets.

Changes to pensions accounting rules have accelerated the trend, together with proposed new levies to the Pension Protection Fund that will reflect funds’ exposures to higher risk investments.

However, Aon spokeswoman Sarah Abraham urges trustees to think carefully about changes in equity exposure.

She explains: “Despite their inherent volatility, the expected return on equities is higher than on fixed interest assets, meaning that over the long term the risk should be rewarded.”

Last week, new research from PricewaterhouseCoopers claimed that 96% of UK businesses with defined benefit schemes believe their schemes are unsustainable.

Over one-third of businesses questioned planned to close schemes for existing members within the next five years.

 

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