Major final salary pension funds see deficits fall by a quarter

The funding position of the 200 largest final salary pension schemes in Britain's private sector reached the healthiest level of the year so far at the end of July, with an aggregate deficit down to £74bn from £100bn a month earlier.

The reduction, revealed today by actuarial consultancy Aon, represents good news for private sector employers struggling to cope with the costs of final salary schemes. But it could also present them with further problems.

Last month's deficit reduction was a result of strong performance from the stock market as well as a sharp rise in yields on corporate bonds. And Aon said there was scope for larger reductions in schemes' deficits thanks to the announcement by ministers last month that the minimum requirement for annual pension rises will shortly be reduced. This could wipe as much as £150bn off the deficits of the schemes, the consultancy added.

In theory, however, employers could find themselves caught out by the improved strength of their schemes' funding, with new regulations on how companies account for pension liabilities due to be introduced shortly.

Aon warned that the new regime might actually be more onerous for schemes with falling deficits.

Sarah Abraham, an actuary at Aon Consulting, said: "The changes to the treatment of surplus in UK pension schemes are now imminent, and could have some nasty implications. For many sponsors, if no action is taken now, balance-sheet positions could increase substantially next year."