UK - Pension funding for the UK's largest 200 listed companies is actually in a better position than the previous month despite recent market turbulence, figures from Aon Consulting reveal.

According to the latest Aon study of the pension funds' returns under international accounting rules, "rising bond yields and favourable investment returns have ensured that pension schemes are still better off over the course of [August]" and the total deficit between them has reduced from £13bn (€19.1bn) to £10bn.

Moreover, approximately 10% of pension schemes shifted back into surplus thanks to the strength of bond rates during the first two weeks of August - when the markets were most turbulent this month - but then failed to lock in gains to their IAS19 and FRS17 accounting positions.

Aon figures reveal just how severe the shifting prices of bonds and equities can be to a company's financial reporting position as at the height of the August volatility the FTSE 200 schemes' deficit widened to £26bn while on other days pulled right back to less than £1bn.

Market downturn and its impact on pension schemes has been dampened over the course of the year because AA corporate bond yields, the benchmark measure of pension scheme liabilities, have steadily risen over the year and spreads have widened from 0.59% to 0.98% - an indication the market is now pricing a much higher probability of AA companies defaulting on their corporate debt, according to Aon.

The consultancy acknowledges volatility of the deficit is not a long-term concern for pension schemes but Marcus Hurd, senior consultant and actuary at Aon Consulting, said timing is becoming increasingly important to pension funds in their quest to shift assets and reduce risk.
 
"It is likely that schemes will increasingly seek to de-risk at levels of funding that balance affordability with an acceptable degree of risk," said Hurd.

"Once the target is established timing is critical, because, in volatile market conditions, the window of opportunity can be short lived and may not return for months or even years, he added.