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08

DB pension deficits 'increased by £50bn last month'

Open-access content Monday 5th August 2013 — updated 5.13pm, Wednesday 29th April 2020

UK defined benefit schemes saw their deficits jump by £50bn last month, according to figures published by Xafinity Consulting today.

Scheme liabilities grew by £92bn - from  £1,672bn in June 2013 to £1,764bn last month. This was partly offset by a £42bn boost in the value of scheme assets, leaving a deficit increase of £50bn.

The total defined benefit pension scheme deficit in July 2013 was £629bn, compared with £579bn a month earlier. Last month's deficit was £42bn more than that reported in July 2012.

According to Xafinity, most of the increase in deficits from June to July 2013 was due to the fact that the equity market 'bounce back' in July was not enough to counter falling bond yields.

Hugh Creasy, director at Xafinity Corporate Solutions, said the main focus for pension scheme finances needed to be control over investment risk.

'Sponsor contributions cannot be expected to make a material impact on balance sheets, at least not in the short to medium term. The state of equity markets is more significant, but again is not the main driver.'

He suggested that deficits could be better controlled if sponsors managed the financial risks of the changing outlook for interest rates and inflation.

'Controlling these investment risks does not mean the end of the deficit, but it can mean the end of the increases in the deficit.'

This article appeared in our August 2013 issue of The Actuary.
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