GLOBAL - Rising oil prices are exacerbating pension funding deficits at multinational pension plans, with benchmark plans in all the world's leading economies experiencing a fall in their funded status in the third quarter of 2004 - except for Australia and Brazil.
The Towers Perrin Global Capital Market Update: Third Quarter 2004 found that rising oil prices were the main influence on financial markets during the quarters, raising pension liabilities and hitting assets.
The Projected Benefit Obligation funded ratio-- the measurement in percentage terms of the present value of all future pension liabilities against the market value of assets --fell in the third quarter in Canada (-4.7%), the Euro-zone (-3.9%), Japan (-4.5%), the UK (-1.1%) and the US (-4.4%).
Only Australia (0.5%) and Brazil (3.6%) saw an improvement in the funding position of their benchmark pension portfolio.
Nigel Bateman, European head of Tower Perrin’s global consulting group said: “This research report shows the negative impact that high cost of oil is having on the financing position of defined benefit pension plans around the world as well as impacting on the macro-economic environment in which multinationals are operating.
“Pension fund managers and finance departments should ensure that companies don’t take their eye off the damaging financial implications that the historically high oil price is having on pension plan funding.”
The report, which examines how DB pension plans in major retirement markets worldwide have been affected by global capital market changes, found that only the more resource-rich nations such as Canada and Australia benefited from rising oil prices, while equity returns in the US, Japan and the Euro-zone were negative.
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