UK - Standard and Poor's reports that corporate pension deficits have stabilised across the UK despite similar fund deficits continuing to climb across the Eurozone.
S&P claims that while there have been no rating actions among European corporations as a sole and direct consequence of deficits on post-retirement benefits, deficits are generally not falling.
Contrasting trends now appear between the UK, where deficits tended to stay broadly flat during 2004 and the first half of 2005, and the continent, where deficits were fuelled in 2004 (as is likely in 2005) by discount rate reductions and modest employer contributions and asset returns.
Commenting on the S&P article Credit FAQ: European Corporate Postretirement Benefits Deficits, Emmanuel Dubois-Pelerin, corporate criteria officer for S&P in Europe, said she had observed contrasting evolution between the UK and mainland Europe.
She said: Generally, European corporate deficits on post-retirement benefits schemes barely declined during calendar 2004, as modest employer contributions and asset returns were typically offset by ongoing service and interest costs.
The typical UK deficit was flat or slightly down, thanks to satisfactory equity-driven asset returns and stable discount rates. In contrast, in the Eurozone, the present value of obligations, and consequently deficits, typically increased, as discount rate assumptions were lowered, while asset returns remained modest.
In continental Europe, 2004 actuarial losses were often heavy and reflected declining inflation adjusted discount rates. The decline in rates is likely to continue in 2005, fuelling pension deficits, and will only be gradually recognized in earnings as they are amortized, as allowed by IAS19.
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