Pension schemes drop more than £50bn in value over the past year

FTSE 100 companies’ pension schemes dropped more than £50bn in value over the past 12 months, a study has revealed.

The 15th annual Accounting for Pensions report, by consultant actuary Lane Clark & Peacock (LCP), found inflation rises, equity market volatility and the credit crunch caused a £12bn surplus in July 2007 to turn into a net deficit of £41bn last month.

Employers were “cushioned” by the use of the IAS19 accounting standard, which measures market conditions based on bond yields rather than gilt yields. In the past six months, bond yields have risen dramatically, reducing IAS19 liabilities by £40bn, which LCP says allowed employers to think the economic turmoil was not as bad as believed.

Bob Scott, partner at LCP, said the future was not looking pretty for companies that still used defined benefit pension schemes.

“With a possible recession looming and the threat of further regulatory intervention, the outlook for continuing defined benefit provision seems rather bleak,” Scott said. “Events of the last year demonstrate the importance of assessing and managing pension risks and being prepared to take opportunities when they present themselves.”

He told Personnel Today that HR professionals have a lot on their plates trying to maintain a sense of equality between older employees on defined benefit pension schemes, and new employees starting on defined contribution pension plans.

“They need to figure out how to educate and inform the rest of their workforce that is coming in, possibly with an inferior pension scheme, and keep them incentivised and rewarded so that there’s a level playing field across the whole workforce, which is a real challenge,” Scott said.

The report also said it expects more pension buyouts from the FTSE 100 firms, following recent moves by Lonmin and Friends Provident.

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