UK - Falling gilt yields have increased the aggregate deficit of almost 7,800 defined benefit schemes to £19.6bn (€25.79bn), according to latest figures from the Pension Protection Fund.
January figures from the PPF 7800 solvency index showed at the end of December the total deficit of schemes in deficit increased by £9.1bn to £82.2bn, while the total surplus of schemes in surplus fell £4.9bn to £62.9bn.
The index blamed the £14.4bn deficit increase, up from £5.2bn in November 2007, on lower gilt yields which increased liabilities, in turn offsetting the impact of slightly higher equity markets in December.
In the monthly update of 7,783 DB schemes, the PPF revealed the number of schemes in deficit increased to 79%, or 6,131 schemes, while the number of schemes in surplus fell by 262 to just 1,619 schemes.
That said, research showed total scheme assets had increased 1.2% in December to £845bn, although scheme liabilities also increased by 2.9% in to £865bn as falling bond yields increased liabilities by around 2.6% compared to 0.9% rise from equity markets.
In contrast, research from Mercer's Quarterly FTSE 350 Pensions Deficit Survey showed the funding level for DB schemes in the FTSE 100 is 98%, with an aggregate deficit of just £9bn.
The figures also suggest schemes in the FTSE 350 are 97% funded with a deficit of £13bn, substantially down from £50bn in December 2006, which Mercer attributes to increasing bond yields and the inclusion of seven new entrants into the FTSE 100.
John Hawkins, principal at Mercer, said: "Given the high levels of volatility witnessed in the markets in the second half of 2007, it is encouraging to see that FTSE350 pension schemes remain well funded on aggregate - especially when compared to the equivalent position at the end of 2006."
That said, although the report suggests developments in the risk reduction and alternative buyout markets has put pressure on the cost of buying out with traditional insurers - leading to reduced premiums and increased flexibility - Mercer estimates the buyout deficit for the FTSE 350 is still £122bn, putting it beyond the reach of most pension schemes.
"Given the rapid rate of development in the traditional and alternative buyout markets, it will be interesting to see how much business is written by some of the new players in 2008. There is still little evidence of the robustness of the security offered by a number of the new solutions and, as with most things in life, schemes and sponsors should consider carefully what they are getting for their money when de-risking or buying out," Hawkins added.
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