US - Current accounting rules have helped to improve pension scheme funding status, despite a $35bn aggregate pensions deficit, but left it vulnerable to dramatic falls, according to Mercer.
Adrian Hartshorn, a member of Mercer's Financial Strategy Group, said it was important to understand the relationship between corporate bond yields and pension plan liabilities: "Although there has been a significant reduction in the funded status of pension plans over the year, had there not been an increase in credit spreads the position would be worse."
He said credit spreads between AA corporate bonds and US Treasuries had been typically 1% to 1.5% between 2003 and 2007, but as of the end of September had risen to over 3.3%.
Hartshorn added: "If markets settle and credit spreads contract to previous levels without a recovery in the equity markets and without any other external events, the funded status of pension plans would fall to 77%, equivalent to a deficit of over $400bn."
Mercer said it was important for plan sponsors to understand the risks involved with pension schemes, and encouraged investors able to take a long term view to 'sit tight' in the current market turmoil.
In the UK, Hewitt Associates said proposed interim changes to IAS 19 would exaggerate pension scheme risk in comparison with other liabilities, which could exacerbate the shift from defined benefit to defined contribution schemes.
Simon Robinson, pension consultant at Hewitt Associates, said: "We recognise there are flaws in the current IAS 19 and welcome some of the proposed changes, such as the removal of deferred recognition of investment gains or losses on the balance sheet, which we believe is misleading.
"However, we are concerned that the new proposals single out pension schemes for particular attention, increasing comparative volatility."
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