Corporate pensions shortfall shrinks £26bn as assets heal

RECOVERING equity values and rising corporate bond yields have shaved £26bn from the combined shortfall of the UK’s 200 largest private defined benefits pension schemes.

The retirement funds’ deficit narrowed from £100bn to £74bn between June and July, according to risk management firm Aon Consulting. Trustees of schemes run by corporate giants such as BA and BT, which have struggled with gaping holes, will be relieved by the shift.

The government’s decision to link private sector pensions to the consumer price index (CPI) rather than the higher retail price index (RPI) will cut an additional £150bn from companies’ deficits, Aon said. Some estimates show a pension shortfall of £1.3bn could turn into a surplus of £900m after switching to the CPI inflation measure.

But Aon warned trustees to be prepared for forthcoming rules requiring them to account for contributions committed to through recovery plans on an up-front basis. From next year, a company agreeing to pay £100,000 annually for ten years will have to treat the amount as an immediate sum of £1m in accounts.

Aon’s Sarah Abraham said: “For many sponsors, if no action is taken now, balance sheet positions could increase substantially next year.”