The UK’s Defined Benefit pension schemes liabilities jumped £133 billion in February from £1,435bn to £1,568bn according to the latest figures from Xafinity. Most of the increase was attributable to a fall in corporate bond yields, but, critically, the figures also reflect the impact of the quantitative easing programme and a perception of continued long term, low level price inflation.
|
£ Billion |
Feb 2012 |
Jan 2012 |
Jan 2011 |
|
Scheme Liabilities |
1568 |
1435 |
1383 |
|
Scheme Assets |
1085 |
1043 |
1021 |
|
Deficit |
483 |
392 |
362 |
Source: Xafinity Corporate Pensions Scheme model, based on all UK DB pensions and using FRS17 and IAS19 accounting rules
Highlights
Defined Benefit pension schemes deficits rose by £91 billion. Liabilities increased by £133 billion, but these were in part offset by £42 billion growth in the value of scheme assets. The year on year picture is particularly bleak with deficits now over £120 billion worse than 12 months ago according to FRS17 and IAS19 accounting rules.
Monthly changes (January 2012 to February 2012):
• Equity markets have rallied slightly
• Gilt yields down
• Impact of Quantitative Easing showing in the results
Hugh Creasy, director at Xafinity Corporate Solutions said: “Gilt yields are at exceptionally low levels and in part this will be a genuine reflection of depressed base rates over the long term, but it is also inevitably a reaction to the current quantitative easing programme. As this QE distortion works its way through, the danger is that pension schemes may underestimate the true economic outlook for price inflation. This could have dramatic consequences because gilt yields have fallen by between 1.5% and 2% over the last year. If the QE effect within that is even just 0.5%, it will mean price inflation estimates are being substantially underestimated. The liabilities across UK defined benefit pension schemes would not be £1.57 trillion as in the table, but potentially over £1.7 trillion, with existing fund assets only covering just 64p in the pound.”
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