The UKs defined benefit pension schemes saw their deficits fall slightly last month as they emerged relatively unscathed from Moodys decision to downgrade the countrys triple-A credit rating, JLT Pension Capital Strategies said today.
Based on the standard IAS19/FRS19 accounting measure, the deficit of the UK's private sector DB pension schemes as of yesterday was £117bn, according to the consultancy's latest monthly pension funding index. This compares to £121bn at the end of January and £143bn at the end of February 2012.
The UK's leading 100 companies, the FTSE 100, saw their deficits increase slightly - from £59bn at the end of January to £63bn at the end of February, while the FTSE 350 also saw a slight increase in their shortfall, up from £65bn to £68bn over the same period.
Charles Cowling, managing director of JLT Pension Capital Strategies, said that, while the credit rating downgrade seemed to have had little impact on schemes' funding positions, they faced a number of big challenges in the next few months.
'The UK's pension schemes seem to have emerged relatively unscathed from the recent downgrade of the UK's credit rating. This is, however, likely to be short-lived as there are a number of pitfalls looming that have the potential to unnerve plan sponsors,' he explained.
'The ending of contracting out is set to increase the cost of maintaining scheme benefit levels for those schemes still open to accrual, and the continuing austerity measures and the on-going quantitative easing are ensuring bond yields remain low, and liabilities high, applying continued pressure to pension schemes.'
He added: 'The looming inflationary rises would only increase liability values further and the effect of increasing long-term longevity improvements is set to cause yet more woe for pension schemes.'
New rules governing Europe's insurance industry, Solvency II, will also increase the cost of scheme buy-outs, Cowling noted, adding to the 'somewhat gloomy' picture for schemes.
He did, however, point out that scheme funding levels - the relative value of their assets and liabilities - had improved over the past 12 months. As of yesterday, they stood at 91% for the UK's DB schemes as a whole, compared to 88% a year earlier.
