UK pension deficits cut by 61%

The pension deficits of the UK’s 200 largest defined benefit schemes have declined by 61% in the first four months of the year because of increasing returns from the equity and bond markets, according to research from Aon Consulting. Deficits now stand at £28 billion compared with £72 billion at the end of 2005.

According to analysts, return on UK equities rose by 2% and long-dated bond yields by 0.2% in April, contributing £6 billion and £14 billion respectively to pension funds.

“The combination of rising stock markets and bond yields has been good news for pension schemes,” said Andrew Claringbold, principal at Aon Consulting. “Now 25% of pension schemes are fully funded on an FRS17 basis compared to fewer than 5% as at the start of the year.”

Under FRS17 rules in the UK, pension funds are required to calculate their liabilities using a discount rate based on AA-rated corporate bonds and to disclose them on the balance sheet.

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