FIGURES FROM the Pension Protection Fund 7800 Index released today reveal funding levels last month were just 80%, down from 99.9% last December, leaving schemes with one of the worst deficit situations on record, reports our sister publication Professional Pensions.
The aggregate scheme deficit at the end of December 2011 was £255.5bn, more than the deficit posted in August 2009 of £141.2bn and an increase on the £222.1bn deficit at the end of November 2011.
A further 83 schemes previously in surplus slipped into the red, leaving just 1,060 schemes out of 6,533 in surplus.
The index shows assets for the month were valued at just over £1trn. Total liabilities stood at £1.2trn – meaning a 1.9 percentage point drop in funding levels from last month’s figure of 81.9% fully funded.
The PPF, which monitors schemes paying a levy to assess their risk to the organisation, uses the s179 measure to assess the funding position.
The PPF said in the report: “Liabilities increased over the month by 3.6% reflecting the impact of lower gilt yields, with 15-year gilt yields falling by 24 basis points.
“Assets rose by 1.2% over the month because of higher bond prices and a small improvement in equity markets, the FTSE All-Share Index rose by 0.8% during December 2011.
“Over the year to December 2011, 15-year gilt yields were down by 149 basis points and the FTSE All-Share Index fell by 6.7%.”
However, a change to s179 assumptions used by the organisation in April 2011 which raised liabilities by 3.6% would have also contributed the year on year funding level change.
The National Association of Pension Funds said the figures were a “stark and painful reflection of the burdens on final salary pensions in the private sector”.
Chief executive Joanne Segars said: “While the index shows that there has been a modest rise in pension fund assets, this has been trumped by a leap in liabilities, which have increased by a third (32.5%) compared with a year ago.
“Low interest rates, a faltering economy and the side-effects of quantitative easing are all to blame for the rise in liabilities.”
However, said added: “These figures do not reflect the long-term health of pension funds, which work over a long timeframe and are able to manage the effects of market volatility.
“It is important to stress that the underlying pension liabilities – the amounts they have to pay out – have not changed much over the past 12 months. It is the way they are measured that has seen liabilities soar.”
Segars urged The Pensions Regulator to help schemes deal with quantitative easing by giving them some breathing space.
She said recovery periods, smoothing valuation results and postponing valuation dates are all options that should be considered.
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