Reduced expectations for bond yields pushed the combined deficit of the UKs company pension schemes up to almost £700bn last month, according to Xafinity Corporate Solutions.
The latest monthly figures from the consultancy's deficit tracker, published today, reveal that that the total deficit of the defined benefit schemes increased to £695bn - £84bn up on the £611bn calculated at the end of March.
This was largely due to a £100bn increase in value of the schemes' liabilities caused by a slowdown in the estimated rate bond yields are expected to grow in the future. The value of scheme liabilities at the end of last month was an estimated £1,887bn while their assets were valued at £1,192bn. A month earlier, their liabilities were worth £1,787bn and £1,176bn.
Based on Xafinity's figures, the combined deficit of the UK's corporate DB schemes is now nearly £200bn higher than it was at the end of April 2012, when the consultancy calculated a total funding shortfall of £507bn.
Hugh Creasy, director at Xafinity, said the only positive for scheme sponsors would be that the latest monthly increase came after the majority of businesses had reported their financial results.
'The crumb of comfort is that this has come after March 31. The often criticised "snapshot view" has come to save the majority of businesses who report as at March 31,' he explained. 'The gradual progression of deficits during the last few years, however, will mean that few will feel able to ignore this continuing increase in deficits as simply some sort of blip.'
'Finance directors need to be considering: how likely is it that there will be upward expectations for borrowing costs over the remainder of the financial year? The longer base rates are expected to remain low, the larger they can expect their pension scheme deficit to be.'
He added: 'Meanwhile, the threat of inflation continues to lurk in the wings. While this has been relatively quiet during 2013, it would now just take an increase of little more than 0.25% in the outlook for inflation to send reported pension costs past the £2 trillion mark.'
