UK - The aggregate funding position of almost 7,400 defined benefit (DB) schemes in the UK improved by more than £36bn (€39.7bn) in February and posted a deficit of £15.1bn, according to the latest research from the Pension Protection Fund (PPF).
Figures from the PPF's monthly 7800 Index for the end of February also highlighted an improvement on a year-on-year basis, as last month's deficit compared favourably to the shortfall of £204.7bn recorded in February 2009. The monthly improvement is also significant as the aggregate funding position moved from a deficit of £51.9bn at the end of January to £15.1bn at the end of February this year - an improvement of £36.8bn.
The PPF 7800 Index showed the improvement followed a 2.5% increase in pension assets as a result of rising UK and global equities, while the change in gilt yields caused a 2% fall in pension liabilities.
Other findings revealed the number of schemes in deficit fell to 5,191, equivalent to 70.5% of the total DB schemes included in the sample, while the total deficit of these schemes improved from £102.8bn in January to £79.5bn a month later.
The number of schemes in surplus meanwhile reached 2,171, producing an aggregate surplus of £64.4bn, up from £50.9bn the previous month. The value of total assets for the 7,362 schemes also reached £880.8bn - an increase of 2.5% over the month and 21.8% over the year to February 2010. Total scheme liabilities also fell 3.4% over the year to £895.9bn
Elsewhere, latest figures from Pension Capital Strategies (PCS) suggested the estimated funding position for all UK private sector DB schemes on an accounting basis was an aggregate deficit of £181bn.This is equivalent to a funding level of 84%, as PCS estimated total pension assets were valued at £980bn and liabilities at £1.16trn. The figures, which are based to the end of February, suggested the total deficit among FTSE 350 companies has improved slightly as the shortfall was at £96bn, while FTSE 100 companies reported a combined deficit of £84bn in their DB schemes.
Surprisingly, the research from PCS showed the funding position at February 2010 is actually worse than a year earlier when the total deficit of all private sector DB schemes was £173bn, while the FTSE350 posted a deficit of £83bn and the FTSE 100 schemes had a shortfall of £73bn.
Charles Cowling, managing director of PCS, said: "We believe that 2010 will not be an easy year for pension schemes. However, there are signs that UK companies are starting to take significant measures to sort out their pension problems, with liability reduction measures becoming normal and the closure of DB schemes to all employees accelerating."
Aon suggested the recent relative stability of pension schemes would give scheme sponsors some relief but it warned that uncertainty over the Bank of England's intentions regarding quantitative easing might give some cause for concern.
Marcus Hurd, head of corporate solutions at Aon Consulting, said: "Quantitative easing tends to increase the price of government bonds and so reduce their yield. This, in turn, forces up pension scheme liabilities and increases deficits. The perverse impact of quantitative easing is that while it should help the economy as a whole to recover, it also increases final salary pension scheme deficits, thereby putting additional pressure on the very companies it is trying to help."
He claimed many DB schemes with April 2009 valuations that fell due just after the initial phase of quantitative easing "are still struggling to agree contributions with their sponsor in light of the inflated deficits at that date". For example, Hurd noted, a 0.5% increase in the gilt yield - seen as one of the consequences of quantitative easing - adds around £50bn to the Aon200 and around £100bn to the overall UK pension deficit.
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