UK – FTSE 100 pension deficits were slashed by £11bn (€16bn) in two weeks at the end of January, while according to FRS17 accounting standards, deficits increased by £6bn for the whole of last month, said Watson Wyatt.
In a statement released today, the global consultant stated that the more than 14% recovery over two weeks last month highlighted “the short-term volatility of pension deficits when measured by the FRS17 accounting standard”.
The FTSE 100 deficit recovered to £66bn on 31 January after sinking to £77bn earlier in the month following the decline of long-term bond yields.
However, despite the recovery, deficits still rose by £6bn for the whole month, according to FRS17 accounting measurements.
“January 2006 saw some of the biggest swings in the Pension Deficit Index since we started calculating it in June 2002,” said Watson Wyatt senior consultant Stephen Yeo.
“A feature of market-to-market accounting standards is that deficits can vary a lot, even in the course of a few days.”
Yeo added that provided users of company accounts understand this, it shouldn’t be a source of concern. “What would be of greater concern is if the Pensions Regulator were to use FRS17 as a funding target rather than an accounting measure.”
According to Watson Wyatt, FTSE 100 pension liabilities increased by £12bn over January to £405bn – offset by £6bn in asset growth.
Yeo stated there seems to have been no major asset shift by pension schemes, but added “over the long term we do expect bond allocations by pension funds to continue to rise”.
In other news, former Baring Asset Management fixed income and currencies director Ed Britton, has joined Watson Wyatt’s investment consulting business.
Britton - at Barings from February 2003 until December 2005 under fixed income and currencies chief Marino Valensise - has been appointed as a senior investment consultant in Watson Wyatt’s investment manager research team.
He will report to Watson Wyatt’s European head of investment consulting, Kevin Carter.
Watson’s European head of manager research, Craig Baker, said: “Demand from pension funds seeking to add alpha through more aggressive bond mandates is high at the moment and likely to increase even more in the future.
“It follows that we will continue to bolster our resources in this area, and Ed’s appointment is a step in that direction.”
According to a spokesperson for Baring Asset Management, no replacement has yet been named, but they are looking both internally and externally.
The promotion of Watson Wyatt veteran Kevin Meehan to US region manager was also announced today. Meehan will be responsible for managing the firm’s consulting operations throughout the US.