Page last updated at 13:59 GMT, Monday, 10 November 2008

Pension scheme deficits worsen

Elderly couple by the seaside
Many schemes have been pushed into a deficit by the financial crisis

UK final salary pension schemes have fallen even deeper into the red because of falling share prices, says the Pension Protection Fund (PPF).

Its latest snapshot of the finances of nearly 7,800 private sector schemes shows that in October their collective deficit stood at 97.3bn.

That was worse than the 80.3bn deficit seen the month before.

The international financial crisis has severely dented the schemes which a year ago had a surplus of 84.1bn.

"During the month of October 2008 there was a 6.8% decrease in assets due to falling UK and global equities," said the PPF.

"Over the year to October 2008, the FTSE All Share Index fell by 36.8% and 10-year gilt yields were down by 0.30 percentage points.

"Lower bond yields resulted in a 2.2% increase in aggregate liabilities, while weaker equities have reduced assets by 20.9%," it added.

Recovery payments

In the light of the worsening situation, the Pensions Regulator recently sent a letter to the trustees of all the UK's pension schemes, advising them to be keep an especially close eye on their investments in what it called "unprecedented times".

If schemes stay in deficit then employers will have to make good the shortfall by putting in extra recovery payments, typically within 10 years, to ensure the schemes become solvent again.

However, the regulator acknowledged that this might place an excessive strain on the finances of employers at a time of economic difficulty, which could result in suggested recovery plans being longer than before.

In October this year 6,468 schemes (84% cent of total) were in deficit with only 1,273 (16%) still in surplus. By contrast, a year ago 3,121 schemes had a surplus.



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