UK pension deficits reach £1,334 billion

UK corporate pension liabilities have grown to £1,334 billion, based on assumptions as at 31 December 2010, according to the Xafinity Corporate UK Pension Scheme model.

Continuing pressure from longer life expectancies and falling yields has driven these liabilities up by over £500 billion in just two years.

December 2010 brought some respite with the rally in equity markets holding the aggregate deficit back to £350 billion.

Hugh Creasy, director at Xafinity Corporate Solutions, said: “It is all too easy to take false comfort from this brief period of calm. Pension deficits can move swiftly and sharply as investment markets shift.

“Despite the closing of defined benefit (DB) pension schemes, many continue to be heavily dependent on equity prices and even more are exposed to the outlook for price inflation.

“The change to consumer price inflation (CPI) will be helpful to corporate sponsors, but has a far more modest effect than some early commentators suggested.

“The real concern is over inflation, however you measure it, taking off in the shorter term and driving up liabilities.

†The major challenge for corporate sponsors is managing their exposure during turbulent financial conditions.

“You need to be nimble to implement de-risking plans. This means advance preparation, careful choice of triggers, together with closer monitoring to spot the moment now, not last week.”

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