Bond yields to fuel crisis in UK pension deficit

Michael Bow
Follow Michael
THE UK pension scheme funding shortfall is set to smash past the £100bn mark again this year after corporate bond yield plummeted to a five year low, figures show.

Strict accounting rules on pension schemes mean companies must measure their pension debt in line with the yield on an AA corporate bond at a set date, with half of all UK companies using 31 March.

But yields for the 31 March 2013 are among the lowest for five years, meaning companies across the UK will be forced to recognise a huge increase in pension scheme deficits, a consultancy has warned.

Buck Consultants, the pension scheme consultancy that crunched the numbers, said it would be a “travesty” if finance chiefs made decisions based on the annual numbers. “Whilst the funding regime allows them to be pragmatic, current accounting standards do not permit common sense,” Buck senior consulting actuary Marcus Hurd said.

Yields on a 15 year AA corporate bond came in at 4.06 per cent for 31 March this year, according to IBoxx AA, down from 4.63 per cent in 2012 and 6.87 per cent in 2008.

This yield is close to the lowest corporate bond level ever, Buck said.