UK - Any gains schemes might have made following the switch to the Consumer Price Index have been wiped out by falling interest rates, JLT Benefit Solutions believes.
The consultant said sponsors and trustees may be under a false impression that things were improving following the CPI switch, but a fall in long-dated gilt yields has not been matched by a fall in corporate bonds yields, which are used to calculate liabilities in company accounts.
JLT estimated these falls will have increased UK pension liabilities by between 10% and 20%.
Executive director Steven Robinson explained: "The spread between gilts and corporate bonds has increased. Pension liabilities shown in company accounts are measured by reference to AA corporate bond yields and so these will not show corresponding increases.
"In other words only half the impact will be revealed in company accounts and investors and others could well be in for a nasty surprise when the next funding valuation is prepared."
According to JLT, UK government long-dated fixed interest gilt yields are currently about 3.5% per annum, compared to their typical values in recent years of between 4% and 4.5% per annum.
Robinson added: "When the government announced the replacement of RPI by CPI, where scheme rules permitted, this was signalled as saving a scheme significant costs, so sponsors and trustees may have been under a false impression that things were getting better. Many of these gains will now have been wiped out by the impact of the fall in gilt yields."
JLT said UK pension schemes have faced a double-blow from the falling gilt yields and recent falls in equity values which increased FTSE100 deficits by some £35bn, to about £70bn.
Gilt yields have fallen recently because of the increasing demand for UK gilts as the UK government is seen as a safe haven for investment - particularly given its AAA rating - and investors are fearful of investing in more risky assets, such as equities and other types of bonds. In addition, low growth forecasts for the UK are depressing gilt yields.
JLT said the findings could make de-risking measures, such as enhanced transfer value exercises, pension increase exchange exercises and capping pensionable salary, more attractive to hard-pressed corporates.
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