Pension fund finances get worse

Pension scheme deficits rose as the yield on bonds declined

Pension fund finances worsened in August, with the collective deficit of the UK's final salary pension schemes widening to £36.7bn.

That was up from the deficit of £24.1bn at the end of July and far worse than the situation a year ago when schemes had a surplus of £59.1bn.

The figures from the Pension Protection Fund (PPF) cover nearly 7,800 schemes, mainly in the private sector.

The PPF said the cost of funding pensions had continued to rise.

Liabilities

The assets of all the schemes measured by the PPF - including shares, bonds, cash and property - actually rose by 4.2% during August.

But the reason for the schemes' total deficit swelling was that the value of their liabilities rose by an even greater percentage.

Under the accounting method used by the PPF, the value of liabilities actually needed to provide the pensions, now and in the future, rose by 5.6% in August alone.

"During the month of August 2008 there was a 3.5% increase in assets due to rising UK and global equities," said the PPF.

"Meanwhile, lower gilt yields led to a rise in liabilities of approximately 5%," it explained.

Only 23%, or 1,761, of the schemes measured by the PPF were still in surplus last month.

A year ago the number of schemes in surplus was more than 1,000 higher, at 2,817.

Extra contributions

A separate survey revealed that two thirds of 89 firms, all in the FTSE 350 index, were now making extra contributions to their pension schemes, over and above their normal contribution levels.

The Association of Corporate Treasurers and the actuarial firm Mercer, which carried out the joint survey, said this was up from 58% in 2007, and the third year in a row that the proportion of employers making special contributions had risen.

"This group was driven by general pressure from trustees, general risk mitigation, PPF Levy, strengthened mortality assumptions, tax, and Pension Regulator triggers," said Dave Robertson, a partner at Mercer.