UK - Falling bond yields have offset equity gains and left schemes' FRS17 deficits virtually unchanged, a consultant claims.
Lane Clark & Peacock says finance directors are hoping UK equity gains of about 20% last year will bring scheme deficits under control.
But its analysis shows FRS17 values for inflation-linked liabilities have risen sharply since January last year because yields on corporate bonds – which determine the value of pension liabilities under the accounting standard – have fallen by around 0.5%.
LCP estimates the shortfall in scheme assets for FTSE100 companies was £55bn by mid-July.
But it warns the stock market upturn in the second half of last year has not improved the situation as much as companies may have hoped.
It points out that real bond yields could have added 10% to liabilities of schemes which have largely inflation-linked pension promises.
Partner Francis Fernandes said the fall in real bond yields showed there were two sides to the FRS17 story – and it was difficult to predict either.
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