UK - Pension fund liabilities increased by more than 30% in 2011, according to the latest estimates by the Pension Protection Fund, with funding levels at the end of December falling to their lowest point since early 2009.
According to the PPF 7800 index, deficit figures across the 6,500 eligible schemes rose to £255bn (€309bn) at the end of the year, in stark contrast to December 2010, when it reported an almost £22bn surplus.
At the same time, funding ratios dropped 22.3 percentage points year-on-year, with December’s 80% funding the second-worst result in seven years.
Joanne Segars, chief executive of the National Association of Pension Funds, laid blame for the 32.5% increase in liabilities on low interest rates, the Bank of England’s quantitative easing programme depressing gilt yields and a weakened domestic economy.
The yield on 15-year gilts has fallen from a peak of almost 4.5% to below 2.5% at the end of last year.
“These figures do not reflect the long-term health of pension funds, which work over a long timeframe and are able to manage the effects of market volatility,” she said, adding that it was important to stress that underlying liabilities had not changed much over the past year.
“It is the way they are measured that has seen liabilities soar,” she said.
She reiterated the organisation’s call for the Pensions Regulator to grant pension funds “breathing space” in the current climate.
“Recovery periods, smoothing valuation results and postponing valuation dates are all options that should be considered,” she said.
Despite the increased deficit, total assets under management increased slightly by 1.2% month on month, reaching £1trn.
In other news, the country’s largest union has rejected a government offer on reforms to the local government pension scheme (LGPS), stating that a letter from Eric Pickles, minister for local government and communities, had created uncertainty that needed to be addressed before negotiations could continue.
The letter, sent at the end of December, created confusion when it seemingly contradicted agreements reached in negotiations between unions and the Treasury.
Len McCluskey, general secretary of Unite, said the union’s representatives had “lost trust” following the letter - immediately withdrawn by the minister.
“There now needs to be genuine discussions without arbitrary deadlines,” he said. “Our members need clarity before we can move forward.”
A spokesman for the GMB union said its position remained unchanged since last year, with its national secretary Brian Strutton at the time saying he was “reassured” by the principles agreed on in negotiations.
He added that agreements removed the “threat of huge contribution rises”, which unions had predicted would lead to opt outs across the funded pillar, damaging the LGPS’ long-term viability.