U.K. pension deficits come down drastically |
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Thu, 28 Dec 2006 09:50
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LONDON: The combined pension deficit of the U.K.'s top 100 companies came down by 20.5 billion pounds to 39.9 billion pounds in 2006, mainly on account of the resurgence in the stock markets and large scale fund infusion by the companies.
According to an analysis done by actuarial consultancy firm Watson Wyatt, this is the biggest annual decline in deficit since 2002 and the deficits are expected to fall further because the stock markets are rising and company managements are putting additional cash into the funds to avoid levies to be charged by the Pension Protection Fund.
The firm said the deficits were reduced by 14.1 billion pounds in December alone, which is the second largest monthly cut since 2003.
The liabilities came down because of the rising yields on AA-rated corporate bonds in December, which are mostly used to evaluate pension scheme's liabilities. The yield had gone up by 9 per cent from 4.74 per cent to 5.18 per cent during the year.
Stephen Yeo, senior consultant at Watson Wyatt, said a 16 per cent rise in equities, including investment income, in 2006 had increased the assets of pension funds, thereby reducing the deficit. This trend is likely to continue in 2007, he said. "There are signs that deficits may be experiencing the first part of a sustained fall," he added.
Yeo also estimated that FTSE 100 companies will make contributions of at least 5 billion pounds to make up for the deficits, partly in order to reduce the requirement to pay levies to the Pension Protection Fund.
British firms are required to pay a total of 675 million in 2007, up from 320 million pounds in 2006, to the PPF as its board felt the annual levy needed to rise to reduce a shortfall.
The PPF, launched in 2005 to help occupational schemes when the companies go bust, has been able to support more than 90,000 pension scheme members, who would have otherwise lost a major portion or all of their pensions. It is financed by a risk-based levy on firms. Those with better schemes pay a lower rate, prompting many to reassess their pension arrangements.
The analysis found that large corporations like British Airways and BT still have multibillion-pound deficits.
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Actuarial firm says public sector pension deficit may reach £1000 billion 