The deficits of private sector defined benefit (DB) pension schemes have reduced by more than £120 billion, according to the latest monthly index from Pension Capital Stategies (PCS).

PCS estimated that as at 31 January 2011, the deficit for all UK private sector pension schemes was £62 billion, compared to £183 billion a year ago.

Charles Cowling, managing director of Pension Capital Strategies, saidd: “2010 proved to be quite a good year for companies weighed down by pension liabilities and deficits.

“A combination of perhaps surprisingly benign markets and the government's changes to statutory pension increases – moving from a retail prices index (RPI) base to a consumer prices index (CPI) base – has meant deficits have reduced from £183 billion to £62 billion.

“However, 2010 was not been a universally good year for defined benefit pension schemes, particularly in the shape of the new tax changes which come into effect in April 2011.

“It brings further evidence companies are closing down their defined benefit schemes for all employees and we believe this will be accelerated by tax changes for higher earners, making it more and more difficult and illogical to include key employees in the membership of defined benefit pension schemes.

“If defined benefit pension schemes can have no role to play in rewarding key employees, we believe they will soon be ditched altogether in favour of defined contribution schemes.

“Indeed, we believe 2011 will be the year when the majority of defined benefit pension schemes are sadly and finally closed to employees.”

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