Strategic Finance
Equity recovery brings pension relief |
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| Strategic Finance | |
| Written by Gary Howes | |
| Thursday, 01 October 2009 | |
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UK pensions clawing back from depths of previous months say Aon.
Aon (NYSE:AOC) have noted significant reduction in major UK pension deficits. The combined pension funding position shown in company accounts for the 200 largest UK privately sponsored pension schemes (Aon200) has improved by £16 billion to show a deficit of £62 billion. In percentage terms the Aon200 deficit reduced by 20% during September from £78 billion to £62 billion. The good news is that previous difficulties with abnormal market conditions wreaking havoc on liabilities are clearing and now companies can plan for the future with a renewed sense of purpose. One of the challenges for companies with final salary pension schemes is that the funding position is based on both the value of the assets and liabilities. The volatility in asset values during the credit crunch has been well documented, but the value of the corresponding liabilities has been just as uncertain due to the movement of bond yields. Now that yields seem to be stabilising at what might be a new long term norm, the volatility in the value of pension liabilities should reduce and companies can get on with confronting the real issue – facing and tackling the remaining pension deficit. Commenting on the latest figures, Marcus Hurd, head of corporate solutions at Aon Consulting, said: “The era of uncertainty for final salary pensions liabilities is coming to an end. The real issue of pensions deficit remains, but if the goalposts are at least standing still then there is an increased chance of hitting the target. Dealing with the remaining pension deficits, whether accounting, funding or buyout, will have to be met by either strong asset performance or yet more pension contributions. “This is not an easy challenge, but at least now companies can plan for the future. The smart companies will be monitoring the markets closely and using current market conditions as an indicator to lock into more favourable positions in the future.”
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