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UK DB liabilities top £1trn

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  • UK DB liabilities top £1trn

UK - The combined pension liabilities shown in company accounts for the UK's 200 largest privately-sponsored pension schemes has reached £500bn (€567bn) for the first time, according to Aon Consulting.

This places the estimated combined liabilities for all the UK's 8,000 private sector DB pension schemes at over £1trn.

Aon said this increase is occurring largely because of declining corporate bond yields, which are starting to normalise, following their abnormally high spike resulting from the credit crunch.

However, despite the recovering equity market, the accounting deficit of the biggest 200 privately-run DB schemes has remained steady at £78bn as at end-August, up only slightly from £73bn at end-July, according to the Aon200 survey.

Marcus Hurd, head of corporate solutions at Aon Consulting, said: "There have been several high profile cases of schemes closing to accrual, but this only manages future costs and does nothing to eliminate existing liabilities. Liabilities have reached such a staggering high because they continue to balloon in the aftermath of the credit crunch."

Hurd said: "There could well be more bad news in the pipeline. Despite improving equity markets, the only real guarantee for pension funds is further volatility, as gilt and bond yields are set to fluctuate."

And he warned: "Closure is often the first step in pension scheme management, but the real benefits come after the high profile actions through a structured approach to removing and managing liabilities through risk management."

Aon's findings were reinforced by a similar survey from Towers Perrin showing that the pension fund deficits of FTSE100 companies reached £78bn by end-August, an increase of £8bn over the previous month.

Mark Duke, head of pensions at Towers Perrin, said: "While liabilities continue to increase, there could be light at the end of the tunnel for UK plc. If higher equity values signal a more general economic recovery, then companies may be better placed to cover this pension problem."

But he said the next few months will be crucial.

Duke said: "Lower yields and high inflation together generate hits to profits and balance sheets. Companies will be keeping a careful watch on corporate bond yields and inflation expectations as the year-end accounting deadlines approach."

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