Pension Funds Insider

Pension Funds Insider brings the latest pensions news and industry insights; from investment and governance updates to new mandate appointments and pensions regulatory information.

Latest news DC and Auto Enrolment Governance Investment Legal and Regulatory Mandates News and Research Opinions Risk Management Trusteeship

Pension deficit increases by £5bn

Thursday, June 18, 2015

Image for Pension deficit increases by £5bn

Pension schemes have made little progress towards reducing deficits, according to pension consultants Barnett Waddingham.

The company's annual survey of pension disclosures made by FTSE 100 companies revealed that despite making significant contributions and seeing falling long-term inflation expectations, the deficit remains significant.

Overall, the deficit for the companies in the survey increased by nearly by GBP 5bn as gains from contributions, asset returns and falling inflation expectations were more than offset by increases in liabilities caused by reductions in discount rates resulting from plummeting corporate yield bonds.

Martin Hooper, Barnett Waddingham associate, said: "In many cases, particularly where the scheme has significant holdings of gilts, bonds or other liability hedging strategies in place, the damage to the balance sheet will have been tempered by the strong performance on the asset side.

"Although many schemes have retained significant shortfalls, overall funding levels are broadly comparable with 2013."

The survey, in its fourteenth year, focuses on the assumptions adopted by FTSE100 companies for determining the value of their pension liabilities for accounting purposes.

Results from the survey also show that the average discount rate dropped by 0.9% to 3.6% per annum from 4.5% per annum in 2013.

The survey found that average IAS19 funding level has remained consistent with 2013 at 89%, despite a significant drop in discount rates

It also revealed the average RPI inflation assumption adopted by companies in the survey was 3.1% per annum showing a decrease from 3.4% per annum in 2013

It found that the average real salary growth assumption was 0.1% per annum in 2014, representing no overall change from 2013, while the average life expectancy assumption increased by 0.1 years in 2014.

This demonstrates a small increase in the average life expectancy in 2014 of 23.3 years compared to 23.2 years in 2013 (based on a male aged 65 years).

First published 18.06.2015

Lindsay.sharman@wilmingtonplc.com