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The bill for private firms offering final salary pensions has ballooned above £1 trillion for the first time, according to research published today.
The report, by Aon Consulting, said that liabilities for the UK's 8000 private-sector firms offering defined-benefit schemes have soared due to declines in the value of corporate bond yields, which are used to estimate pension costs. Rising life expectancy and falling annuity rates have also helped enlarged the size of the black hole in the bill for workers' retirement.
The total deficit in the top 200 pension schemes rose again in August, hitting £78 billion, from £73 billion in July. But Aon said the figure was lower than it could be, following a “credit crunch spike”. Share prices have risen almost a quarter since the collapse of Lehman Brothers last September, boosting the value of schemes' assets.
Aon predicted that liabilities will rise further in the coming months, leading to more funding shortfalls.
It expects the number of firms closing defined-benefit pension schemes over the coming months to snowball, as employers force workers to shift to cheaper defined-contribution schemes, where retirement income depends on investment returns.
BP, Barclays and supermarket group Morrisons are among the companies which have already closed final salary pensions to new members this year, with nine out of 10 of the schemes now barred to new members. Almost 60% have also been closed to existing employees. Diageo and Tesco are the only two Footsie 100 firms still offering final-salary pensions to existing or new staff.
Marcus Hurd, head of corporate solutions at Aon Consulting, said: “There have been several high-profile cases of schemes closing to accrual, but this only manages future costs and does nothing to eliminate existing liabilities. Liabilities have reached such a staggering high because they continue to balloon in the aftermath of the credit crunch,” he added.
Reader views (4)
Peter Bench - careful - by applying fact based and reasoned logic to a comment you may be opening yourself up to a torrent of abuse.
Keep up the good work though.
- Liberal And Proud, London, UK, 01/09/2009 16:39
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The net deficit (itself a vague figure) is around £75bn i.e. 7.5% of the gross position. Given that this is likely overstated by 25%, the net deficit is probably around 6% on a 30-40 year horizon. Overall it's less than 1% of the total worth of UK plc so sensibly manageable.
- Peter Bench, London, 01/09/2009 15:04
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Add on the public pension deficit and boy you've got some serious problems on the horizon. AN is quite right - No. 10 is completely ducking the issue knowing that it wnt be them who has to clear up this awful mess.
- Wallytrader, London, 01/09/2009 13:17
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In the light of this why hasn't Gordon Brown apologised for his tax raid on pensions back in 1999 that made the situation worse.
The pension situation is worse still when you consider that public sector pensions continue at the expense of all private schemes just to win votes for the Labour voting constituency that is the public sector. It's worse again because it's highly likely that these schemes will also fail and that means virtually nobody will end up with a pension that's anywhere near satisfactory. The silence from 10 downing street is deafening
- Andrew Nicholls, Ely ,England, 01/09/2009 11:24
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