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UK deficits halved as equities recover – Hewitt

UK – Hewitt Bacon & Woodrow says that pension scheme deficits “will have been halved” due to favourable markets – but warned that schemes are not yet fully out of danger.

The firm, part of US-based Hewitt Associates, now estimates that the total deficit of companies in the benchmark FTSE 100 index is now less than 50 billion pounds (71.8 billion euros).

A year ago the figure was put at more than 100 billion pounds on an FRS17 basis, Hewitt said.

"At last there is a sliver of good news for pension schemes,” said principal consultant Raj Mody. “Investment market changes over 2003 will mean that balance sheet pension deficits for leading companies will have halved overall since the worst point of the year."

"Although 2003 was a good year for the financial health of most pension schemes, it's important to note that they are not out of the woods yet.

“While assets are invested mainly in equities, schemes could still see a dramatic reversal of fortunes.”

Mody said trustees need to get together with plan sponsors to “think about whether to lock into their current position, by investing in bonds, or whether to continue to take the risk with equities in the hope of further gains".

He added: "Employers will also have to adopt radical solutions in future to solve the demographic challenge of longer living pensioners but with fewer people of working age.

As recently as August, actuary Lane Clark & Peacock was saying that the combined pension deficit of the UK’s top companies had more than doubled to 55 billion pounds.

And Mercer Human Resource Consulting said in July that the total combined pension fund deficits of UK companies could be up to 300 billion pounds.

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