Pensions - Articles - Pension deficits jump to £611bn as Bond Yields tumble

 UK corporate pension deficits rose by £60billion to £611 billion in March according to Xafinity corporate pension deficits tracker, wiping out the previous month’s fall. 

 The increase in deficits during March is due to a 0.25% fall in bond yields in the second half of March, adding £93 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: ‘31st March will crystallise 12 months of deficit growth for many corporate pension scheme sponsors, with their financial years ending over £100bn higher year on year. It will also be a chastening lesson on the impact of striking a position based solely on markets at a specific date, as it was in just the last fortnight of March that we saw bond yields tumble.

 Bond yields were perceived by many as having only one way to go - up. The truth is those yields have fallen again in the last few weeks. What is often overlooked is that bond asset values and actuaries’ calculations do indeed build in an expectation that yields will rise. For example, gilt yields at the beginning of March, just as the end of March, projected a borrowing cost of 4% in 10 years’ time, a substantial increase on current base rates.

 The important question is not “will yields rise?”, but “will borrowing costs – the key driver for bond yields - increase faster or slower than is priced in today?” March has seen a dip in the speed at which base rates are projected to climb to that 4% and that is where today’s pain has come from.’