The stock market gains resulting from this weeks fiscal cliff deal came too late to improve defined benefit pension scheme funding positions in companys annual accounts but show how market volatility can present opportunities for schemes, Towers Watson said yesterday.
Stock markets rose significantly on Wednesday after the US Congress reached an agreement that averted the combination of automatic spending cuts and tax increases that analysts had warned could send the US economy into recession.
According to Towers Watson, the aggregate pension deficit of the FTSE 100 stood at £35bn on December 31 - the end of the most common accounting period for large UK companies. Market movements on January 2 reduced this to an estimated £27bn. As well as equities gaining in value, liabilities in company accounts fell as corporate bonds lost value, the consultancy explained.
John Ball, head of UK pensions at Towers Watson, said: 'Companies may have been able to give investors a rosier picture if the US fiscal cliff negotiations had not gone right down to the wire.
'Nonetheless, with deficits having been £48bn going into the second half of November, the December 31 position may typically be a little better than some had prepared for.'
Ball explained that the sudden change was further evidence of the importance of schemes ensuring they have someone responsible for making decisions when market gains present opportunities to invest in less-risky assets.
'During the course of 2012, aggregate deficits were as high as £78bn in May and as low as £16bn in September,' he noted. 'As well as keeping on top of day-to-day movements, schemes should ensure that someone has the authority to take decisions when trigger points are reached and before markets turn again.
'There are lots of reasons why conditions could remain volatile in 2013 but schemes who think that the next crunch point in US politicians' negotiations could see another market reaction may want to circle March 1 and the preceding days in their calendars.'