Xafinity research: Pension liabilities climb to £1.5 trillion

Pension scheme liabilities have climbed to £1.5 trillion, according to the Xafinity Corporate UK Pension Scheme Model.

Based on assumptions as at 30 April, higher asset values have tempered the increase a little, but the aggregate deficit has now reached £430 billion.

Hugh Creasy, director at Xafinity Corporate Solutions, said: “The benign first quarter of 2011 may have lulled some into thinking the tide was turning but, as we enter the summer, the outlook for lower long-term interest rates has rekindled the issue of pension costs.

“This mark-up of nigh on £100 billion illustrates two lessons. First, costs can swing by very large amounts over very short periods, in this case, just the second half of April. †Second, it puts into context the Office for National Statistics’ (ONS) recent news over employer contribution hikes. The ONS tell us employers have paid in around £16 billion extra in contributions over the last two years, just one-sixth of the interest rate hit.

“If there is a silver lining, it must be that employers will now have a greater budget for de-risking exercises. The greater the reported pension cost, the greater the opportunity to offer members options without causing pain in the company accounts. Line this up with the news that deficits are on the march again and we can expect plenty of de-risking activity through 2011.”

The Xafinity model draws on The Pensions Regulator’s latest edition of the Purple Book which was published in November 2010. It covers 99% of the UK’s Pension Protection Fund (PPF) eligible defined benefit (DB) schemes and some 12 million members.

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