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06

Pension deficits up to £530bn, says Xafinity

Open-access content Wednesday 6th June 2012 — updated 5.13pm, Wednesday 29th April 2020

The combined deficit of the UK’s defined benefit pension schemes increased to £530bn last month as a ‘double whammy’ of falling equity values and bond yields hit funding levels, Xafinity said today.

According to the consultancy's latest monthly analysis of schemes' funding position using FRS17 and IAS19 accountancy standards, scheme liabilities at the end of May were £1,587bn while scheme assets totalled £1,057bn.

This compares with the situation at the end of April where scheme liabilities of £1,568bn and assets of £1,061bn gave a deficit of £507bn. The combined deficit of the UK's DB pension schemes at the end of May 2011 was £380bn.

Last month saw equity markets lose around 10% of their value, while corporate bond yields fell by around 0.25%, both of which increased liabilities. Schemes that are heavily invested in equities will have been particularly badly hit, Xafinity said.

Ongoing concerns over the eurozone crisis will have led many investors to sell equities and invest in 'save havens' such as gilts and highly-rated corporate bonds. Low yields for these products make it unlikely scheme deficits will fall for as long as this trend continues, the consultancy added.

Ronan Donaghy, actuary at Xafinity, said: 'Sponsors and trustees can and should plan now so that they can take advantage of any improvements in market conditions, while also making contingency plans should current market conditions continue for an extended period.'

This article appeared in our June 2012 issue of The Actuary.
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