Pensions - Articles - Pension deficits increase by £84billion as bond yields slow

 UK corporate pension deficits rose by £84billion to £695 billion in April according to Xafinity’s corporate pension deficits tracker, adding to the previous month’s rise, resulting in deficits nearing £700bn. 

 The increase in deficits during April is because the expected rate of increase for bond yields is now slower than estimated in March, adding £100 billion to the IAS19 liabilities.

 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 crumb of comfort is that this has come after 31 March. The often criticised “snapshot view” has come to save the majority of businesses who report as at 31 March. The gradual progression of deficits during the last few years, however, will mean that few will feel able to ignore this continuing increase in deficits as simply some sort of blip.

 Finance Directors need to be considering: how likely is it that there will be upward expectations for borrowing costs over the remainder of the financial year? The longer base rates are expected to remain low, the larger they can expect their pension scheme deficit to be.

 Meanwhile, the threat of inflation continues to lurk in the wings. While this has been relatively quiet during 2013, it would now just take an increase of little more than 0.25% in the outlook for inflation to send reported pension costs past the £2 trillion mark.”