UK - Deficits reported by defined benefit (DB) schemes have risen to record highs, with the Pension Protection Fund’s most recent 7800 Index showing the average UK scheme funding ratio falling by nearly 6 percentage points to 77%.
According to the latest figures for the end of May, deficits increased by £95bn (€119bn) month-on-month, hitting £312bn, while assets fell marginally to just over £1trn.
Despite the significant fall in the average funding ratio to 76.8%, schemes in surplus only declined by 314 funds to 929, with National Association of Pension Funds chief executive Joanne Segars nonetheless stressing the “immense pressure” schemes were currently under.
Segars said the deficits were being exacerbated by the impact of quantitative easing on gilt yields, as well as the UK’s status as a safe haven country.
“That gilt fall has fuelled this record deficit, which is more a reflection of accounting rules on pensions rather than any structural weakness,” she added.
Towers Watson senior consultant Mark Duke, meanwhile, warned of the danger of the underfunded schemes now entering the PPF after an insolvency event.
“The PPF’s modelling indicates that it is most likely to weather the storm and collect more than enough in levies to cover future claims, but historically low gilt yields make the risks to which it is exposed look bigger than before,” he said.
“The Pensions Regulator will want to help the PPF get into shallower water, so will encourage employers to put money into their pension schemes as quickly as they can afford to.”
However, Duke noted that employer contributions made over the past three years - since a scheme’s last triennial valuation - had often been “cancelled out”.
In other news, Royal Bank of Scotland Group has defended “essential” changes to its DB scheme that will see members given the option to contribute 5% of salary, or see a reduction in their benefit upon retirement.
The fund, closed to new entrants, currently only sees 15% of salary contributed by the bank, with members now given the option to contribute an additional 5% and draw benefits five years later, at 65 rather than 60, to maintain current arrangements.
Alternatively, members can opt to not contribute and receive reduced benefits.
However, Unite national officer David Fleming criticised the move, saying: “With 28,000 workers receiving no pay rise this year, these changes will make access to the pension scheme unaffordable for many.”
He said RBS was attempting to implement the changes without negotiating with the involved unions and added: “This is yet another example of RBS failing to value its workforce in bank branches and back offices up and down the country.”
However, a spokeswoman for the bank said the changes were needed to keep pace with improvements to life expectancy and argued they brought the fund “in line” with others in the UK.
She added: “We will be consulting on these proposals with Unite.”
Finally, the £986m Highlands local authority pension fund is tendering for an actuarial consultant, with the contract running for five years.
According to the Highland Council pension fund’s most recent annual report, Barnett Waddingham currently holds this position.
The tender noted that the council also oversees the Northern Constabulary’s police pension scheme, as well as the fire fighters’ pension scheme for Highland & Islands Fire and Rescue Service.
It also said that, because these were soon to become part of respective national fire and police forces, the contract might not continue to cover the funds.
Interested parties can obtain more information through the Scottish government’s public procurement website, with all applications due by 15 August.