UK yields pose pension fund problems

A precipitous drop in UK index-linked gilt yields in mid-January, which caused pension deficits to soar, is likely to be just the start of a problem that will continue to plague the industry for the foreseeable future, say consultants.

On January 17, the yield on the 1.25% 2055 index-linked gilt dropped by 10 basis points to 0.48%. The following day, yields touched a record low of 0.38% before rebounding. For UK pension funds, which calculate liabilities using a discount rate based on bond