Consultants have warned employers that although pension deficits on the whole fell last year they should not be complacent as there is a large variation in schemes’ funding levels.
According to Aon Consulting pension deficits almost halved from £72bn to £41bn. It produces a monthly tracker of the scheme deficits of the UK’s 200 largest defined benefit (DB)schemes, including those in the FTSE 100. It put the general improvement down to strong UK equity returns and the rising yields available on bonds which have reduced the values placed on pension scheme liabilities.
However, Aon has warned companies not to be complacent in 2007. Its research indicated a huge variation between companies with 25% expecting to see an improvement of at least 8% in their pension scheme funding level, while some will have experienced a deterioration in their pension scheme funding level.
Andrew Claringbold, principal at Aon Consulting, said: "If the FTSE100 continues to rise to 7,200 or long-dated bond yields rise by a further 0.7% then this would almost wipe out aggregate UK pension deficits altogether."
Separately, Mercer Human Resource Consulting has found that pension scheme deficits in the FTSE 350 companies fell by over a third (38%) in 2006. Year-end projections for 2006 suggested that deficits fell from £86bn in 2005 to £61bn last year. According to longer term trend analysis, this drop is partly a reversal of the rise in 2005.
Tim Keogh, worldwide partner at Mercer, said: "Rising funding levels are good news for pension scheme members, but the underlying longevity and investment risks remain significant issues for sponsoring employers. There has been little change in relative risk levels over the last four years."