Pension schemes' deficit hits record high of £312bn

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The deficit in UK pension schemes hit a record high of £312.1bn in May, the Pension Protection Fund (PPF) reported yesterday.

It is the highest deficit since PPF records began in 2003 and climbed almost £100bn over the month.

In fact, since the £24.5bn shortfall reported in May 2011, the deficit has soared 1,274 per cent.

This means that the 6,432, final-salary schemes tracked by the PPF have only 76.8 per cent of the assets they need to pay out to pensioner members, down from 82.6 per cent in April.

The PPF blamed the rise on shrinking gilt yields.

"Over the month, 15-year gilt yields fell by 55 basis points, which resulted in liabilities increasing by 7.6 per cent," it said.

Tom McPhail, head of pensions research at Hargreaves Lansdown echoed that.

"The numbers look extreme but this is a consequence of the unusually low gilt yields we are currently experiencing," he said.

"It is reasonable to expect that the yields – and therefore the deficits – will head back in the opposite direction at some point." But he warned that the longer it takes, the more pressure will build on the regulator and employers to take corrective action by increasing employer-contribution rates.

Ros Altmann, director general of Saga, said the situation is a result of the Bank of England's quantitative-easing policy.

"QE is a disaster for company pension funds since the more the Bank prints new money to buy gilts, the worse pension deficits become," Ms Altmann said. "It seems of great concern that the Bank has persisted in buying gilts and worsening pension deficits.

"This is clearly damaging the UK pension system since both company and private pensions in the UK are underpinned by gilts."

Joanne Segars of NAPF warned: "Cash-strapped businesses struggling to keep pensions going will have to find more assets to fill in the deficits."