Pensions - Articles - Pension deficits fall by £84billion as bond yields move up

 UK corporate pension deficits fell by £84billion to £611 billion in May according to Xafinity’s corporate pension deficits tracker, cancelling the previous month’s rise of £84bn.

 The fall is due to bond yields having increased by 0.25%, which more than offset the drop in the FTSE during the month.

 FRS17 and IAS19 corporate pension scheme deficits

 Source: Xafinity Corporate Pensions Scheme model, based on all UK DB pensions and using FRS17 and IAS19 accounting rules

 Hugh Creasy, Director at Xafinity Corporate Solutions, said: “The big news for pension scheme finances is not the fall in equity values, but the increase in bond yields. As a result the 0.25% increase in bond yields during the month more than compensated for the fall in the FTSE due to speculation about the Fed reeling back on quantitative easing.

 “While FTSE had passed 6800 in May, it ended the month at 6583 and has continued going south since. This is a salutary lesson for those pension schemes that remain exposed to interest rate and inflation risks. The sheer size of pension obligations, together with the mathematics of long term financial estimates means that, while equity market news hits the front page, the deficit is far more sensitive to these less well publicised indicators. Quite simply the effect of a 0.25% rise in yields equates to the FTSE falling 1000 points. This will, of course, make interesting reading for many FDs looking to report their mid-year disclosures at the end of this month.”