UK - New statistics have highlighted that pension scheme deficits actually improved as a whole during August - despite the recent market turmoil.
The firm said that during August 2007, the largest 200 UK pension funds’ aggregate deficit reduced slightly from £13bn to £10bn.
However, this masked the underlying the underlying volatility of the deficit, which peaked at over £26bn, but also fell below £1bn during the month.
Marcus Hurd, senior consultant and actuary at Aon Consulting, said: "This summer’s credit crunch fortnight posed a real headache for pension scheme managers. Despite market falls during the middle of August, however, pension deficits have actually improved over the month as a whole. Pension schemes are long-term investments and the overall impact of credit crunch has been small so far, but nevertheless, losing £25bn in ten days can be difficult to watch.”
He added that it was likely that schemes would increasingly seek to de-risk at levels of funding that balance affordability with an acceptable degree of risk.
“The market turmoil has caused the market to price an increased probability of a major UK company defaulting on its corporate debt, which is reflected in the higher credit spread available on AA corporate bonds. Ironically, however, as pension schemes are required to account based on the security of a typical AA company, then as these companies are priced as being weaker, their pension schemes appear more attractively funded, said Hurd.
Michael Berg, a partner at Lane Clark Peacock actuaries and consultants, said equity and global markets had certainly recovered a large proportion of the losses they had suffered in the middle of August.
However he cautioned that an improvement of £3bn was relatively small in percentage terms.
Furthermore, Berg argued the accounting deficit was not the only deficit measure used by analysts.
He warned: “For other measures, for example a measure derived from gilt yields, then, unfortunately it becomes a less favourable position for pension funds.The volatility has been a reminder of the degree of risk which is inherent in DB pension arrangements.”
An innovative funding structure has been agreed for Croydon Pension Fund. However, there are some concerns about the arrangement. Stephanie Baxter reports
Some 52% of red flags raised by schemes on suspected scam pension transfers involve advisers or unregulated introducers, a report by the Pension Scams Industry Group (PSIG) has claimed.
The Norfolk Pension Fund has been successful as the lead plaintiff in a class action case that went to jury trial in California involving securities fraud.
In this week's Pensions Buzz, we want to know whether bosses should have to pay into the same staff DB scheme as their workers rather than their own executive pension fund.