CPI change helps cut pension deficit

The pension deficits of Britain's biggest companies has shrunk by almost two-thirds in the past year, according to actuaries LCP. The aggregate FTSE 100 pension deficit now stands at £19bn, down from £51bn a year ago.

However just £17bn was paid into FTSE 100 pension schemes over the period, of which £11bn went towards reducing deficits. The bulk of the reduction actually came from favourable market conditions and, notably, the change in the inflation measure used to calculate pensions from RPI to CPI.

The latter created a windfall for some companies, which saw their pension liabilities reduced dramatically over the year. BT, for instance, experienced a £3.5bn fall in pension liabilities because of the change.

Meanwhile figures from the Aon Hewitt 350 Index show that there was £35bn worth of swings in the UK pension deficit during July. On 27 July the collective final salary pensions accounting deficit of FTSE 350 companies stood at £38bn, down from £44 billion at the end of June. But there were significant swings during the month, driven by volatility in equity markets and bond yields.

At the beginning of July there was an improvement of £17bn on the back of investor confidence, leaving the deficit at £27bn on 7 July. However, in the following 11 days there was an £18bn reversal.