Eighty-five per cent of pension schemes would not have sufficient assets to provide members with benefits above the Pension Protection Fund's (PPF) compensation levels, were their employers to become insolvent tomorrow, warns Watson Wyatt.

The financial consultant's head of defined benefits consulting, John Ball, said: "Pension schemes have been on a rollercoaster ride, with the aggregate deficit changing by £20bn or more in 13 out of the last 16 months. July saw them travel along an upwards stretch of track for once. However, although rising stock markets have continued to boost pension fund assets in August, liabilities will also have increased thanks to falling bond yields, helped by the latest extension of quantitative easing."

The warning follows the PPF's publication of the latest funding position, on a s179 basis, for the defined benefit (DB) schemes which would be eligible for entry into the PPF.
The 7,400 DB funds have seen an improvement in funding position to a deficit of £158.1bn at the end of July 2009, a rise from a deficit of £200.1bn at the end of June 2009. However, a year previously, the deficit was £18.8bn.

The total deficit of all schemes in deficit has improved from June 2009 (at £215.8bn) to £179.0bn in July 2009, and the total surplus of schemes in surplus has increased to £20.9bn from £15.7bn at the end of June 2009. In July 2008, however, this stood at £58.9bn.

Scheme liabilities increased by 15.2 per cent over the year to July 2009, to £956.4bn, although in June 2009 had decreased by 1.5 per cent over the month from £971.3bn in June 2009.

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