Pension liabilities jump 20% to record high

Pension liabilities for private sector final salary pensions schemes have hit a new high of £1.2 trillion over the past year.

The record liability amount is a 20% increase since the £1 trillion figure was reached in August 2009, according to Aon Consulting’s Aon200 index. The index, which tracks around half of the UK’s private sector pension scheme liabilities, showed liabilities of £608 billion, but the deficit has increased to £97 billion.

The main cause of the increased value placed on the schemes’ liability is the fall in the yield available on government securities.

The lower yields are a product of the weak and slowing world economy, very loose monetary policy as credit conditions remain tight, and the flight to safety effect from abroad due to problems in the euro-zone.

Marcus Hurd, head of corporate solutions at Aon Consulting said: “Market conditions have never been as tough as they are today for final salary pension schemes.

“The value place on pension scheme liabilities has now hit an unprecedented £1.2 trillion. Traditional scheme investment strategies are struggling to keep pace in rapidly moving markets.

“It is only a year ago since we balked at the landmark £1 trillion figure, but the woes just continue to mount.

“Pension scheme liabilities at this level pose a significant financial risk to UK businesses at a time when there are real fears that market conditions could deteriorate further.

“Rapidly-moving markets emphasise the need for adaptable investment strategies and the need to reduce risk where possible when the opportunity arises.”

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