Pension deficits widen further

downward spiralThe accounting deficit of defined benefit pension schemes in the UK increased further in July, according to Mercer’s pensions risk survey.

Aggregated deficits of FTSE 350 companies under IAS 19, the rule that concerns employee benefits under International Financial Reporting Standards, is estimated at £75 billion at the end of the month.

This equals a funding ratio of 87% and compares to £70 billion (€88.1 billion), or 88%, at the end of June.

Mercer said inflation fell over the month, but high quality corporate bond yields did as well. Such a fall in corporate bond yields, which are used to place a value on pension scheme liabilities in company accounts, will increase the value placed on these liabilities.

“The overall deficit is yet again at its highest month end figure for the year so far,” said Adrian Hartshorn, partner in Mercer’s financial strategy group. “This is despite July being one of the best months so far in terms of increases in asset values and long-term market implied inflation falling to its lowest point since a brief period towards the end of 2008.” ©2012 Funds Europe

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