UK corporate pension deficits shot up by £71 billion to £621 billion in January according to Xafinity Consulting’s corporate pension deficits tracker. A 12% increase on last month and 58% increase since this time last year.
The sharp increase in deficits in January is due to a 0.5% increase in the outlook for price inflation adding £114 billion to the IAS19 liabilities, despite strong asset performance caused by a 380 point rise in the FTSE and a small increase in fixed interest yields during January.
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 sharp increase in deficits this month will be disappointing news for finance directors with strong asset performance being wiped out by inflation expectations. A large part of this will be market corrections after the ONS chose not to redefine the RPI, which serves as a very direct and topical reminder of the power of price inflation in driving pension costs.
With Mark Carney’s imminent appointment as Governor of the Bank of England, there is growing speculation about the future management of inflation targets. If a burst of price inflation is indeed a necessary price to help ease the debt burden and ignite economic growth then it will be an expensive price for corporate pension schemes.
If there is a grain of comfort, it is in the news that actuaries’ latest mortality tables slow a slight reduction in life expectancies. One year’s data will not in itself save the day for IAS19 deficits, but this latest news will help if it tempers the allowance actuaries build in for future growth.”
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