UK - Pension scheme deficits at Britain's top 100 firms could be wiped out by the end of the year, a report by Aon Consulting claims.
The aggregate deficit under the financial reporting standard FRS17 stood at £65bn at the end of December.
Aon says the consensus view is that equity markets will rise to 4725 points and bond yields will edge up to 5.9%, which will cut the deficit to £40bn this year.
But Aon says if corporate bond yields rise by a further 0.6 percentage points – to 6.5% – and the FTSE100 hits 4725, then the deficit will virtually disappear by the end of the year.
Aon’s estimation is based on findings by investment bank Morgan Stanley, which suggested that the total FTSE100 pension deficit was £65bn at the end of 2003.
Aon Consulting used this figure and the average asset allocation to project the assets and the liabilities of the FTSE100 companies’ pension fund assets and liabilities to the end of 2004.
Principal and actuary Paul McGlone said: “Our retrospective analysis of the investment bank’s consensus forecasts indicate that the FTSE is continuing to rise at a rate quite close to that predicted in 2003.
“This, coupled with an overall fall in bonds, bodes well for pension schemes and we would remain cautiously optimistic that FTSE100 pension deficits could be wiped out by the end of 2004.”
But Lane Clark & Peacock partner Francis Fernandes said: “We have all been making these FRS17 estimates, but predictions of December 2004 numbers seem a little unnecessary.”
He added: “Isn’t it better to just wait a couple of months for published accounts and then use the most up-to-date information.
“Otherwise, you’re guessing about future market levels and double-A bond yields, but too many other things could have changed – the asset mix, the impact of many companies paying higher contributions and the membership profile, to name a few.”
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