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.”
The top stories this week were the High Court's decision to block the £12bn annuity transfer from Prudential to Rothesay Life, and a separate court ruling that 'raises the bar' for pension rectification exercises.
Guaranteed minimum pension (GMP) equalisation has soared to the top of pension schemes' to-do lists, with 58% stating it is a priority project, research from Equiniti has revealed.
Professional Pensions is holding its defined contribution (DC) conference on 4 September.