UK - Total losses for UK pension schemes for the 12 months to the end of October have reached £383bn (€488bn), Aon Consulting has claimed in its latest research. 

An update of the firm's Aon200 Index, which measures the accounting deficits/surpluses of the 200 largest-privately sponsored defined benefit (DB) schemes, showed the aggregate deficit had reduced by £9bn to a total of £15bn.

However, while the overall position improved for the 200 biggest schemes, Aon Consulting pointed out 64% of these schemes are now reporting an accounting deficit on either an FRS17 or IAS19 basis.

In addition, the research claimed the total asset losses over the past year for the 8,000 final salary schemes in the UK has now reached £226bn, so combined with recent figures suggesting £157bn has been wiped off the value of defined contribution (DC) schemes, all DB and DC schemes have lost £383bn since October 2007, according to Aon. (See earlier IPE article: DC members see pensions drop over a quarter)

Despite the apparent improvement in the deficit of the top 200 schemes, Aon warned the pension scheme accounting measures currently used are "fundamentally flawed in the current economic climate and they mask the true extent of the losses that are being suffered".

That said, the firm warned the large losses and continuing deficits in DB schemes means trustees might feel the need to ask sponsoring employers to contribute an extra £45bn a year, for the next five years, to make up the shortfalls.

Aon claimed employers sponsoring DB schemes are facing a "triple whammy assault" in 2009 as there are placed under pressure to increase contributions just as they can least afford to do so.

The consultancy noted employers may be subject to a vicious circle as the poorer economic outlook makes trading difficult and forces trustees to seek higher contributions to secure benefits from what it sees as a weaker employer covenant.

However, liquidity problems make it harder for companies to meet their agreed contribution levels, and falling equity markets reduces the value of scheme assets, which means the scheme funding level falls.

Marcus Hurd, head of corporate solutions at Aon Consulting, said: "If all final salary pension schemes were assessed for financial adequacy right now, then it is likely that contributions would soar by an additional £45bn a year for the next five years."

He argued following the "triple whammy" of the financial crisis, instead of calling for an increase in contributions, pension schemes should be more supportive of the sponsoring employer's financial situation.

"Companies are facing the toughest environment ever for final salary pensions. Sensible financial plans, which ease pressures in the short-term, are required to ensure companies can meet their pension obligations in the long-term," said Hurd.

"The sensible outcome may be that companies should in fact be paying less next year rather than more," he added.

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