A recent analysis by Xafinity shows that UK pension schemes are 10 percent better funded than last year. Deficits have fallen to £365 million in June, compared to £380 million in May this year, and £506 million in June 2010, while liabilities in UK pension schemes remained relatively steady at £1.4 billion in June, the consultancy claimed.
Although forecast for price inflations are looking up, rising yields of corporate bonds have propped up company balance sheets, said Hugh Creasy, director of corporate solutions at Xafinity.
“Looking back 12 months to the relatively grim days of June 2010, with the FTSE standing 1000 points lower, the swing is £140bn. This means corporate pension schemes are now 10 per cent better funded, almost entirely as a result of the state of the equity market”, he said.
“Corporate pension schemes are gradually and inexorably heading towards less volatile investment holdings as part of their de-risking strategies and this is starting to pay off. It does not require a long memory to recall the FTSE plummeting to 3500”, he added.
Creasy said the new accounting rules implemented in June that requires keeping pension gains and losses off balance sheets has impacted the results.
“Until now, there has been a balance to strike between higher volatility within the balance sheet and lower charges within the profit and loss account – estimated by Xafinity as an annual saving of around £10bn. Now that the carrot is being taken away, the move towards bond-related investments is bound to accelerate”, Creasy said.
“We are struggling with the changes. There are widespread changes happening across the market from state pensions to personal pensions. Then there is the added dimension of the volatility of equity markets”, said Nick McBreen, IFA for Worldwide Financial Planning.