UK - Corporate pension fund deficits of FTSE 100 share index companies have fallen by nearly two thirds since accountancy standards were introduced in 2002, studies has found.
A study by Watson Wyatt, based on company size, found that deficits stand at £31.8bn(€48.1bn) at the end of January 2007, "the lowest figure since records began," according the consultancy firm.
The previous lowest figure since the FRS17 accounting standard was introduced in 2002 was £34.3bn in April 2006 in contrast to the £90bn of total deficits in March 2003. Deficits fells by £8.2bn last month, following a reduction of £14.1bn in December.
The study by Aon Consulting, tracking the scheme deficits of the UK's 200 largest defined benefit schemes, including all of those in the FTSE-100, found a similar trend: although investment returns have remained relatively flat last month, UK pension deficits continues to fall to £31bn.
Stephen Yeo, senior consultant at Watson Wyatt, commented that most of the fall in deficits was due to increases in bond yields, which rose by 0.15% in January and now stand at their highest level since March 2005.
"Accounting standards require that all the liabilities are valued using bond yields, so deficits are particularly sensitive to them. Although low long-term interest rates are good news for borrowers, they increase the value of pension liabilities for accounting purposes," said Yeo.
He gauges that, if recent rises mark a return to the higher yields which used to prevail, this will be good news for companies operating defined benefit pension schemes.
"Another positive influence has been the strong performance of shares, where around 60% of company pension scheme assets are invested. Share markets remain close to the highest level they have reached since the current accounting standard was introduced in 2002," he added.
Watons Wyatt expects deficits to reduce even further in 2007, provided that investment markets do not experience adverse shocks, "as companies continue to make significant deficit-reduction contributions."
John Cridland, the Confederation of British Industry (CBI), welcomed the news, saying that employers have increased their pensions contributions sharply in recent years and that the stock markets has performed well.
Nonetheless, he warned: "Companies remain under great pressure to cut their deficits further and the Government must not hobble their efforts."
He added: "In particular, employers are concerned at the rising cost of the Pension Protection Fund (PPF) levy on companies - it is more than twice the original estimate at £675m a year and come on top of their payments into their own pension funds. The PPF board much be wary of placing too hefty a financial burden on firms."
Also Cridland called for further simplifying of legislation to support firms with occupational pensions.