Sections

High inflation benefits funds not pensioners - Aon

UK - FTSE100 companies saw their pension surpluses rise to record heights on the back of rising inflation, while benefit payout increased only enough to maintain purchasing power of pensions, consultancy Aon has found.

Higher prices reduced the expected costs of pension liabilities in final salary defined benefit plans by around £10bn (€14.4bn) over the last year as most schemes target investment returns linked to inflation, Aon explained in its monthly FRS17/IAS19 tracker study.

Because most UK pension schemes do not award full inflation-linked pension increases, the benefit increase they pay to members is only a "real level" rise to maintain the purchasing power of pensions.

"This environment of higher inflation is easing the burden on UK pension schemes, because many schemes benefit from broadly inflation-related investment returns while paying out benefits that are not fully linked to inflation," commented Marcus Hurd, senior consultant and actuary at Aon Consulting.

The aggregated surplus of pension schemes in FTSE100 companies is currently £5bn compared to a deficit of £41bn a year ago. Funding levels were improved both by sinking liabilities and good returns.

If you have any comments you would like to add to this or any other story, contact Barbara Ottawa on +44 (0)20 7261 4618 or email barbara.ottawa@ipe.com

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2444

    Asset class: Trade Finance.
    Asset region: Global.
    Size: USD 10m.
    Closing date: 2018-06-25.

  • QN-2452

    Asset class: Hard Currency.
    Asset region: Emerging markets.
    Size: USD 300 mil..
    Closing date: 2018-06-22.

Begin Your Search Here