Pension schemes push back debt reduction by 18 months

Michael Bow
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UK pension schemes have been forced to push back their timescales for clearing their debts by one and a half years, a study out today shows.

Pension plans now expect to reach their long-term objectives – commonly the stage when they are out of deficit and into surplus – in 12.8 years, up from 11.3 years in 2009.

The survey of 220 schemes across the UK, conducted by pension consultant Aon Hewitt, found the delays were mainly due to increased liabilities, which are tied to people living longer.

However, pension funds are also looking more to the long term, with 90 per cent of schemes now having a long-term objective, up from just 60 per cent in 2009.

“In the 2009 survey they were hoping, on average, to reach their target in 2020 but in the 2013 survey that deadline has drifted out to 2025,” Aon Hewitt partner Kevin Wesbroom said.

“This is as a result of spiralling liabilities, driven in the majority of cases by the historically low levels of yields on government bonds.”

Pension schemes have been dealt a double whammy by way of plunging gilt yields – which are used as a guide to discount liabilities – and volatile equity markets since the financial crash.

The poll also found 44 per cent of schemes have frozen investment plans, up from 21 per cent of respondents in 2009.