UK schemes' surplus halved

UK - UK pension funds saw their aggregated surplus melt from £51bn (€75bn) to £26.8bn amid market turbulences in August, according to the latest Pension Protection Fund (PPF) Index.

However, the funding position of the 7,800 defined benefit (DB) funds included in the index is still more favourable than a year ago when there was a combined deficit of £41bn.

At the end of August, 73% of DB schemes in the sample were under-funded with their deficit worsening from £45bn at the end of July to £56bn, while the combined surplus of well-funded schemes fell from £96bn to £83bn.

Shemes' liabilities increased 3.6% over the month while they declined 0.6% over the last year, pushed up mostly by falling bond yields.

"During the month of August 2007 alone, the fall in gilt yields led to an increase in liabilities of approximately 3.2%, while there was little effect on assets due to equity market changes," the PPF noted.

The FTSE All-Share Index fell by 0.9% while 10-year gilt yields fell by 20 basis points.

The PPF added rising bond yields and equity markets have contributed to the improvement in the schemes' aggregated funding position over the last year. It estimates scheme assets rose by around 9.1% because of rising equity markets while higher bond yields cut liabilities by around 5.5%.

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