Deficits double on final salary schemes

[TrueBlueTerrier]

http://www.guardian.co.uk/money/2008/se ... s.pensions



Final salary pension scheme deficits have more than doubled in a year to nearly £92bn, as share prices have plummeted and funds have seen their liabilities jump amid rising inflation and increasing numbers of scheme members reaching retirement age.

The calculation comes from the Pension Protection Fund, established to pay compensation to defunct company pensions schemes. It is based on a survey of the funding requirements of 7,800 firms with defined benefit schemes, which are linked to final salaries. The PPF says the deficit in these schemes jumped from £43bn at the end of August 2007 to £91.6bn last month.

John Ralfe, a pensions expert and a former corporate financier with Boots, says companies have been caught in a double squeeze. 'Liabilities are rising at a time when stock markets are falling and inflation is kicking in, making it more expensive to fund those liabilities. It's a difficult situation, and one that might not be resolved any time soon.'

He warned that when stock-market-listed companies report their interim figures over the next couple of months, 'many will record significantly higher deficits than in February/March, in the wake of volatile markets and the worsening international financial crisis'.

The PPF's findings are calculated by valuing the total assets of the funds, which are affected by the price of bonds and shares, minus their liabilities.

Recently, another survey from Aon Consulting showed that tumbling stock markets had wiped £36bn off the value of the UK's 200 biggest listed companies, including BP and Vodafone.

The huge cost of running final salary plans has forced almost 75 per cent of them to close to new members, while a growing number of employers are selling their funds to specialist buyout firms.