Stimulus sees pension deficits soar

PENSION deficits soared in the run up to the Bank of England’s latest programme of quantitative easing (QE2), data revealed yesterday.

Aggregate deficits jumped to £196.4bn at the end of lat month, up from £117.5bn at the end of August -- according to over 6,500 schemes measured by the Pension Protection Fund (PPF).

Over 80 per cent of the recorded schemes were in deficit, the PPF said.

The surge in deficits has been prompted by lower asset values -- partly due to tumbling share prices -- and higher liabilities.

Liabilities are “discounted using gilt yields and hence rise as gilt yields fall,” commented Citigroup’s Michael Saunders yesterday.

Gilt yields declined in the build up to the Bank’s decision to purchase another £75bn in assets in a bid to stimulate the economy.

“The recent gilt rally lifted aggregate pension liabilities by 6.3 per cent month-on-month in September, the sixth biggest monthly rise in recent years. This is an unfortunate side-effect of the runup to the QE programme,” Saunders said.

“If sustained, rising corporate pension deficits will put pressure on companies to lift pension contributions,” he added. “Effects on investment and jobs are not definite, but probably adverse.”