Will 2010 be turning point for DB pension schemes?

Pension Capital Strategies (PCS) has updated its monthly index showing the funding position of UK defined benefit (DB) pension schemes.

The index uses the standard accounting measure (IAS19 / FRS17) used in company reports and accounts.

Charles Cowling, managing director of PCS, said: 'The past year has not been a good one for UK pension schemes.

'Indeed the increase of more than GBP170bn in the total deficit (as recorded in company accounts) is the worst calendar-year performance on record.

'Despite strong investment returns in equities and elsewhere, pension deficits have risen sharply as liabilities have increased by even more than the investments.

'This is mainly due to changes in the bond rates used to value liabilities.

'As financial markets have returned to some sort of calm after the turbulence of 2008, reductions in AA bond yields (used to value pension liabilities) and increased inflation expectations have resulted in significant increases to pension liabilities.

'While 2009 has been a very difficult year for employers and their pension schemes, it has highlighted the need for employers to get a hold of and then manage down their DB pension risks.

'The pension landscape may look bleak at the moment for employers, but there is light at the end of the tunnel - it is possible to get on top of pension worries by implementing an integrated programme of measures to reduce liabilities and risks.

'We believe 2010 could mark a turning point for employers as liability reduction measures become normal and the closure of DB schemes to all employees accelerates, thus capping the growth in new liabilities.

'This year therefore holds up the prospect of being the year when the UK finally turned the corner in the management of its pension liabilities,' Cowling finished.

PCS has just issued a newsletter highlighting some of the quick and easy actions that employers should be taking to reduce their pension liabilities.

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