Pensions - Articles - FTSE 100 companies: No knee jerk decisions on DB deficits

 “DB schemes are again back in the spotlight with reports over the past few days highlighting a sharp increase in deficits thanks to falling long-term interest rates. While deficits are clearly a big issue it is important not to react to this news with knee-jerk measures.”

 “This recent spike in deficits has been driven by falling long-term interest rates caused firstly by the referendum result and, more recently, the Bank of England’s monetary operations. The 15-year yield has fallen from 2.25% last year to just under 1% today. While this may seem like a small fall, compounded over the long term it has the effect of significantly increasing liabilities. And while the value of long-term bonds has also increased, by as much as 30% in the past year, if schemes weren’t fully invested in these assets this will have increased their shortfalls.

 “Of course a balance needs to be struck between paying shareholders and repairing deficits. But given the potential stormy waters ahead for UK business, diverting resources from investment and capital to repair what is, at the moment, a paper loss could be ill-advised.”