Pensions funding shortfall stabilises

The funding shortfall faced by the UK's 200 biggest defined benefit pension schemes stabilised during February, figures showed today.

But consultancy firm Aon Consulting warned another round of quantitative easing by the Bank of England could push pension schemes deeper into the red.

The group found the 200 biggest defined benefit schemes, including final salary pensions, collectively faced a funding shortfall of £94 billion at the end of last month, down from £97 billion in January.

The deficit faced by schemes has remained broadly stable for the past four months, although it is still more than double the level it was at in February last year of £44.8 billion.

Marcus Hurd, head of corporate solutions at Aon Consulting, said: "While we are seeing levels of volatility for pension schemes beginning to decrease, there are certainly still dark clouds on the horizon.

"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 said many pension schemes that were valued in April last year, just after the initial phase of quantitative easing began, were still struggling to agree contribution levels with their sponsoring company in the light of the inflated deficits they faced at the time.

The group estimates that a 0.5% decrease in the gilt yield, which has been widely quoted as the impact of quantitative easing, adds around £50 billion to the collective funding shortfall faced by the UK's 200 biggest schemes, and around £100 billion to the deficit for all defined benefit schemes.

There is a growing trend for companies to close their defined benefit pension schemes, as they become increasingly expensive to offer due to investment volatility and increased life expectancy.

Recent research from the Association of Consulting Actuaries found nine out of 10 defined benefit schemes had been closed to new members, while 18% had been closed to existing ones as well.

Workers are instead being offered less generous defined contribution schemes, under which their employer only guarantees the amount they will pay into the pension, leaving individuals to shoulder all of the risk.

Meanwhile, the Association of Consulting Actuaries became the latest group to criticise the Government's plans to reduce tax-relief on pensions for people earning more than £130,000, saying it was "seriously flawed".

ACA chairman Keith Barton said: "We understand the desire to raise additional revenues in the current climate and that those on higher incomes must accept they will bear a higher proportion of the tax take.

But, he added: "It seems almost to have been designed to do maximum damage to ongoing pension provision - in direct opposition to the Government's stated policy of encouraging the retention of 'quality' schemes."

Independent Partners: 10 top tips for retirement. Get your free guide here

Isis fighters travel in a vehicle as they take part in a military parade along the streets of Syria's northern Raqqa province
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
Life and Style
The veteran poverty campaigner Sir Bob Geldof issues a stark challenge to emerging economies at the Melbourne HIV/Aids conference
Arts and Entertainment
Benedict Cumberbatch and John Malkovich talk Penguins of Madagascar at Comic-Con
comic-con 2014Cumberbatch fans banned from asking about Sherlock at Comic-Con
Arts and Entertainment
Chris Pratt stars in Guardians of the Galaxy
filmGuardians Of The Galaxy should have taken itself a bit more seriously, writes Geoffrey Macnab
Sir Chris Hoy won six Olympic golds - in which four events?
Life and Style
People may feel that they're procrastinating by watching TV in the evening
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultants - Banking & Finance

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

    Graduate Recruitment Resourcers - Banking Technologies

    £18000 - £25000 per annum + OTE £40,000: SThree: Huxley Associates are looking...

    Associate Recruitment Consultant - IT

    £20000 - £25000 per annum + OTE £40,000: SThree: Computer Futures has been est...

    Business Analyst

    £300 - £350 per day: Orgtel: Job Title: Business Analyst Rate: £300 - £350 per...

    Day In a Page

    Backhanders, bribery and abuses of power have soared in China as economy surges

    Bribery and abuses of power soar in China

    The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
    Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

    Highland terriers steal the show at opening ceremony

    Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
    German art world rocked as artists use renowned fat sculpture to distil schnapps

    Brewing the fat from artwork angers widow of sculptor

    Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
    BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

    BBC takes viewers back down memory lane

    The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
    Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

    Nicolas Cage shines in low-budget drama Joe

    Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
    How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

    Make your own ice lollies and frozen yoghurt

    Think outside the cool box for this summer's tempting frozen treats
    Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

    Fiesta is UK's most popular car of all-time

    Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
    10 best reed diffusers

    Heaven scent: 10 best reed diffusers

    Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
    Commonwealth Games 2014: Female boxers set to compete for first time

    Female boxers set to compete at Commonwealth Games for first time

    There’s no favourites and with no headguards anything could happen
    Five things we’ve learned so far about Manchester United under Louis van Gaal

    Five things we’ve learned so far about United under Van Gaal

    It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
    Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

    Screwing your way to the top?

    Good for Lana Del Rey for helping kill that myth, says Grace Dent
    Will the young Britons fighting in Syria be allowed to return home and resume their lives?

    Will Britons fighting in Syria be able to resume their lives?

    Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
    Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

    Beyoncé poses as Rosie the Riveter

    The wartime poster girl became the ultimate American symbol of female empowerment
    The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

    The quest to find the perfect pair of earphones

    Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
    US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

    Meet the US Army's shooting star

    Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform