Defined benefit pension scheme deficit hits £1tn

by Gill Montia

Story link: Defined benefit pension scheme deficit hits £1tn

New figures from Aon Consulting estimate the combined deficit of the UK’s 8,000 defined-benefit (DC) pension schemes in the private sector at over £1 trillion.

However, the firm puts the liabilities faced by the 200 biggest schemes at £78 million at the end of last month, up only £3 million from the end of June.

The size of the black hole in DB schemes can be attributed to falls in the value of corporate bond yields devalued by the credit crisis, and Aon says it expects gilts and bond yields to continue to fluctuate as markets remain volatile.

However, the group recently advised that a shift away from equities in response to volatile markets could prove short sighted, as the expected return on equities remains higher than on fixed-interest assets, over the long term.

Meanwhile, a recent study by consultancy firm, Watson Wyatt, has suggested that half the UK’s non-state DB schemes will close to existing members within the next three years because of falling investment returns and increased longevity.

According to the research, 9% of DB schemes have shut to existing members already, but the figure could rise to 50% by 2012.

If the forecast is accurate, an estimated one million members of DB schemes will be transferring to defined contribution arrangements in the years ahead.