3/2/2010
By Sophie Baker
The end of 2010 could bring about a pensions deficit of £500bn for the UK's defined benefit (DB) schemes, warns Xafinity.
Using information in the Pensions Regulator's latest Purple Book, its fifth edition, Xafinity Consulting said that the Corporate UK Pension Scheme showed liabilities of £1,191bn at 1 January 2010, with assets of only £891bn. This produces a funding deficit of £300bn at the end of 2010, five times larger than the deficit a year before.
Xafinity is concerned, however, that the deficit could hit the £500bn mark should a fall in bond yields occur, even if equity markets remain at their current level.
"This deficit is expected to be a permanent fixture throughout 2010, particularly as the long-term expectations for inflation are predicted to remain high," explained Robert Hunt, corporate solutions director.
Hunt told Pensions Age that this value could increase with the longevity issue, and that he expects to see exercises which mitigate or remove DB liabilities come to the fore, such as enhanced transfer value (ETV) exercises.
He said working longer is another possible solution, as are buy-outs. "[The buy-out market] is coming back into its own," he said. "We have a close relationship with Pension Corporation. They expect to do doubt the amount of business in 2010 as last year, and the way our work is going, I believe that."
Hunt added: "Uncertainties surrounding life expectancy will add upward pressure on the liabilities leading many more scheme sponsors to consider the viability of defined benefit pension provision." He also told Pensions Age that the Pensions Regulator's (TPR) latest guidance on record-keeping was a welcome one, and reflects the necessity for quality in this practice, particularly when it comes to looking at buy-out as a solution.
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