UK - Over 50% of the top 200 company pension schemes are back in surplus as a side effect of the summer's credit crunch, according to research from Aon.
This is because companies must use AA bonds to benchmark their pension liabilities. But as the likelihood of defaults has risen, these bond spreads have widened, bringing down the financial burden on pension funds.
Marcus Hurd, senior consultant and actuary at Aon Consulting, commented: “Pension scheme funding has appeared to improve in company accounts because the benchmark has been lowered, not because of any real improvement in the financial condition of pension schemes.”
Hurd added: “It remains to be seen whether this will be a long lasting reduction to the benchmark or if it will revert to the previous levels.”
AA corporate bond spreads are at a five year high and consequently attractively priced, which, Aon said, would make them an interesting prospect for investors.
Aon analysed the UK’s largest defined benefit (DB) schemes, including all companies in the FTSE 100.
The research showed that the total surplus from this group was £5bn, an increase of £45bn from the same time last year, and £12bn since the end of July.
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