UK - Figures issued by pension consultants have highlighted the volatility of existing pensions accounting as some calculations indicate the UK's major listed company pension schemes shifted from a pensions deficit to a substantial pensions surplus on market turbulence and bond pricing, while another firm has calculated a deficit for the same period.
The exact size of the overall pensions surplus is unclear at this stage as three companies - Watson Wyatt, Aon Consulting and Pension Capital Strategies - have all issued completely different figures concerning the surpluses pension funds carry under the terms of the required pensions accounting for FRS17/IAS19.
Watson Wyatt has issued a statement suggesting the UK's 100 largest companies listed on the London Stock Exchange (FTSE 100) have moved the aggregate deficit of £12bn (€15bn) at the beginning of September to a surplus of around £30bn by the end of the month.
Aon, at the other end of the scale, suggested the top 200 listed companies now have a collective deficit of £6bn while the FTSE 100 schemes have a £3bn deficit.
And Pension Capital Strategies (PSC) has calculated FTSE 100 companies had a surplus of £18bn at the end of 30 September, under FRS17/IAS19.
That said, the recent volatility in share trading as well as across other financial markets will not necessarily have presented pension funds with an actual improvement in the value of their liabilities during this "financially tumultuous month".
John Ball, head of defined benefit consulting at Watson Wyatt, recognises the huge drop in the value of equities may not be offset by improvements to AA-rated bond yields - the ‘discount rate' against which pensions liabilities are measured against under IAS19 - as long-term inflation pressures may also be eating into any fixed income gains.
"It may seem counterintuitive to have what appears to be good news about pensions in a month of such financial drama. But it isn't just share prices that affect the surpluses and deficits that companies have to disclose on their balance sheets," said Ball.
"As far as the accountants are concerned, FTSE 100 pensions are back in surplus. However, what will matter more to most companies is the attitude of their pension plan trustees, who are unlikely to take such a sanguine view of the current position."
Paul Dooley, senior consultant and actuary at Aon Consulting, said the reason those figures are all different is calculations are dependant on which bond prices were taken and which bonds they are actually marking prices against.
"The figures are dependant on exactly which date you decide to make your measurement and because markets have been so volatile that can make a real difference," said Dooley.
"We calculated our figures at the close of Tuesday, but if we had gone a day earlier or later we would have been talking about a surplus. We have to assume the actuarial assumptions companies use and with corporate bond yields being so high there is a reasonable range we see companies adopting as the discount rate."
Aon noted UK corporate bond yields rose from 6.5% in September to 7.3% on 30 September, and this was the chief reason accounted liabilities on the FTSE 200 schemes reduced by £50bn month-on-month.
At the same time, credit spreads widened and reduced the value of company's accounted pension liabilities while future inflation rates have fallen from 3.9% to 3.7%.
"As the markets tumble, it might be expected that pension deficits worsen, but company accounting figures defy this because pensions accounting standards are showing even bigger falls in scheme liabilities.
"Recent falls in asset values have been disguised by a larger reduction in the calculated value of accounting liabilities but employers should not be lulled into a false sense of security by the big improvement in accounting positions."
Charles Cowling, managing director, at PCS, described the fluctuating AA bond prices and their impact pensions accounting as "just a quirk of the accounting rules that is hiding the problems that many pension schemes currently face".
"It has been a very difficult time for pension schemes. In the last year we have seen one of the largest ever shifts by pension schemes into lower risk investments (bonds now make up 40% of pension scheme assets and that percentage is rising)," said Cowling.
"But much of the good risk management work that has been done by companies and trustees has been undone by these dramatic markets. Even with the recent move to lower risk investment strategies, pension schemes are seeing ever-increasing volatility in funding levels," he continued.
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