ExpatsPensions_UnHappy_PensionerDefined benefit scheme deficits at the UK’s largest companies have risen to an all-time high in spite of improving stock market returns.

FTSE 300 pension scheme deficits climbed to £111bn in April from £108bn a year earlier, pushed by a fall in corporate bond yields, the assets used by schemes to back their pension promises, according to Mercer’s Pensions Risk Survey

But funding levels were also adversely affected by expectations for inflation: these affect the cost of the pensions, which are typically index-linked.
The funding ratio, a measure of assets to liabilities, also fell to 84 per cent in April this year, down from 85 per cent a month earlier, according to Mercer’s monthly survey.

“It is disappointing that, despite more than a 3 per cent increase in the FTSE 100 over April, pension scheme deficits still increased so significantly,” said Ali Tayyebi, senior partner in Mercer’s retirement business.

“The driving factor was a significant increase in liability values, which in turn resulted from a small reduction in long-dated corporate bond yields, combined with a small increase in the market’s expectations for long term inflation.”

According to Mercer, deficits have remained stubbornly high in recent years in spite of an increase in contribution levels by members. UK companies contributed £63bn to UK pension schemes in 2010 up from £25bn in 2000, according to the Office for National Statistics.

“It is clear that despite this increase in contributions funding levels are not improving,” said Adrian Hartshorn, senior partner in Mercer’s financial strategy group

“Companies and trustees need to explore other ways of controlling costs, managing risk and discharging liabilities.” Companies that execute this efficiently will put themselves at a competitive advantage.”

Expats Pensions Comment:

With the increasing deficit of UK schemes, many people are moving oversea and taking their pension fund with them. There are currently significant advantages for clients that are living or considering moving overseas to consider transferring their UK Pension to a Qualified Recognised Overseas Scheme (QROPS).

Defined Benefit Scheme transfers out are likely to be blocked from April 2015, therefore there is a small window available for anyone considering this.

For a free pension consultation and report on your scheme from our experts, please see our website www.expatspensions.com