Pension liabilities up more than 60% in five years

UK pension liabilities have increased by more than 60% in five years, according to research by KPMG.

The professional services organisation’s 2013 Pensions accounting survey, which had 305 respondents, found that this increase, measured over the period since January 2008, is due primarily to falling yields on AA corporate bonds, which are used to discount the value of future benefit payments under international reporting financial standards (IFRS).

Over the same period, a typical pension fund portfolio invested in a combination of equities (UK and overseas) and both government and corporate bonds is likely to have returned closer to 40%, including re-investment of dividends and coupons. 

A further driver is the increasing allowance for improvements in future life expectancy, with a current 45-year-old expected to live nearly two years longer once in retirement compared to a current pensioner.

Naz Peralta, director in KPMG’s pensions practice (pictured), said: “It’s the now familiar issue that, however well assets perform, pension liabilities seem to grow even more quickly. 

“The issue is the same whether we consider liability measures for employer accounts under IFRS, or for cash funding discussions.”