Tweet
Britain's defined-benefit pension schemes are deep in shortfall and still falling
Britain's 7,411 defined-benefit pension schemes face a net funding shortfall of £242bn – more than 10 times the aggregate deficit recorded a year ago.
Figures compiled by the government's Pension Protection Fund show March's 2.8% stockmarket rally was not enough to stem the widening gap in pension funding. The month's rally – one of only three in the last year – was easily outweighed by declining yields from government bonds. Burdened by Bank of England moves on quantitative easing, falling gilt yields led to an increase in fund liabilities of 6.3%.
Three-quarters of defined-benefit funds, which link pensions to an employee's final salary, are in shortfall. Those funds in surplus saw their aggregate funding cushion shrink from £59bn to £11bn.
The PPF, a lifeboat scheme to rescue funds sponsored by employers that have gone bust, said last month that the number of schemes to have sought its protection had reached 100 and the total number of workers and retired staff under its protection had reached 31,191.
It is braced for an unprecedented wave of trustees knocking on its door. The schemes sponsored by Turner & Newall and Nortel UK alone will more than treble the number of people relying on the PPF for their retirement incomes.
Many pension experts believe the PPF has become a financial and political timebomb. One insolvency expert said it was "logically inevitable" the shrinking number of defined-benefit schemes will eventually not be able to support the funding needs of the PPF.
David Cule, principal at Punter Southall, pointed out the deficit is already "significantly greater than the quantitative easing package" and "on a par with the level of support being put together for the banking system".
Alan Rubenstein, who only recently took over as chief executive of the PPF, has quickly signalled he is considering moves to make the PPF's levy on already hard-pressed schemes "more counter-cyclical". This would involve requiring funds to make greater contributions to PPF coffers when the economy is in growth. Critics have described the proposal as yet another effort to store up problems rather than tackle them.
guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
More...
