The total deficit of FTSE100 pension funds has almost doubled from £124bn at the end of March 2008 to £245bn at the end of March 2009 on an 'economic basis', says Redington Partners.

The 'economic basis' discounts any liabilities using the swap curve, and is also considered to give a much more conservative valuation than IAS19, the measure commonly used by corporate sponsors to report pension scheme deficits in annual reports and accounts.

The £121bn fall has been attributed partly to a £58bn increase on the present value of liabilities, and partially on a £57bn deterioration in equity holdings.

On an IAS19 valuation basis, FTSE100 aggregated funds have seen a surplus of £21bn fall to a deficit of £51bn, with just one year producing a deterioration of £72bn. On this basis, liabilities are valued using the appropriate yields on long term AA-rated corporate bonds. Redington said these yields have declined by 0.20 per cent, and the FTSE has fallen by 30 per cent.

A further major concern for FTSE100 pension funds this year has been that of weakening corporate sponsor covenants. The FTSE100 has fallen from £1,381bn to £989bn, representing a decrease of £392bn. However, a year ago the aggregate economic deficit of the FTSE100's pension schemes represented around nine per cent of the sponsors' total value by market capitalisation. On 31 March 2009, the aggregate economic deficit had increased to 25 per cent of the market cap.

Dawid Kontey-Ahulu, partner and co-founder at Redington Partners, said: "On any basis, these numbers illustrate the immensity of the challenges facing defined benefit pension funds. Pension liabilities have risen very sharply, entire asset classes are in free fall and all at exactly the point of the most extreme weakening of the collective corporate covenant in recent history. There have been many references in the past to a "perfect storm" but this time it's the real thing. We are seeing a significant increase in the number of pension funds urgently seeking to implement risk management strategies."

- Pensions Age April 2009

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