Page last updated at 11:36 GMT, Tuesday, 9 March 2010

Pensions: Sharp cut in private sector funds' deficit

Two pensioners
Pension schemes have come under the microscope in the downturn

A sharp cut has been reported in the deficit of final salary pension schemes in the private sector, figures show.

The deficit was reduced from £51.9bn at the end of January to £15.1bn at the end of February, the Pension Protection Fund said.

The value of pension funds can be volatile especially on a month-by-month basis.

But the 7,400 schemes covered by the scheme were in a stronger position than a year ago.

At the end of February 2009, the deficit stood at £204.7bn.

Stock market

The healthier position for pension funds has been led by the improving picture with shares and gilt yields.

£200 billion of combined pension fund deficits that the PPF measured 12 months ago has all but disappeared
John Ball, Towers Watson

"During the month of February there was a 2.5% increase in assets due to rising UK and global equities," the PPF said.

At the same time, improved yields on government bonds meant that the cost of paying for pensions fell by 2%.

A change in actuarial assumptions in October 2009 also reduced the estimated liabilities of schemes by around £70bn during the past year.

"Funding positions have improved because of the dramatic rebound in equity values since the FTSE 100 index reached its nadir on 9 March 2009 and because pension funds can now earn higher interest rates by lending money to the Government or buying up existing Government debt," said John Ball of pension consultant Towers Watson.

"The PPF also took a fresh look at the prices insurers charge to take on pension obligations and found they had come down.

"Together, these changes mean that the £200 billion of combined pension fund deficits that the PPF measured 12 months ago has all but disappeared," he added.

Closures

The improved value of pension funds' investments meant that there was a fall in the number of schemes in deficit.

In February, there were 5,191, compared with 5,528 in January, representing 70.5% of total defined-benefit schemes in the scheme.

The number of schemes in surplus increased in February to 2,171, or 29.5% of schemes, from 1,841 in January 2010. There were 904 schemes in surplus in February 2009.

The total assets of the pension funds amounted to £881bn in February 2010, an increase of 2.5% month-on-month and up 21.8% compared with a year earlier.

A growing number of businesses have closed their final salary pension schemes in recent times, not only to new joiners but existing members as well.

"The bad news for companies is that the deficits they have to report in their accounts are calculated very differently and will often have got worse rather than better over the past 12 months," said Mr Ball.



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