Many DB pension schemes which have actuarial valuations this spring face remaining in deficit for another two years, analysis from consultancy Towers Watson has warned.
In most schemes, employers and trustees reach a funding agreement once every three years, with valuation dates commonly falling in late March or early April.
But analysis by Towers Watson has shown that low bond yields have left these pension schemes “treading water”.
It means they would have to either increase contributions from the employer by approximately 30 per cent or push back the date at which they would be fully funded by two years.
According to Mercer’s Pensions Risk Survey data for April, the accounting deficit of DB schemes for the largest 350 listed companies rose from £127bn at 31 March to £128bn at 30 April. Funding levels remain at 83 per cent.
Graham McLean, head of funding at Towers Watson, said: “New snapshots of scheme funding positions are not going to look pretty.
“Over the past three years, investments have performed strongly but lower bond yields have increased liabilities.
“Typically cash deficits will be about where they were three years ago and the significant sums that employers have paid into their pension schemes have only allowed them to tread water.”
Towers Watson’s analysis looks at a model scheme that was 80 per cent funded at the end of March 2012 and where the employer and trustees had agreed a 10-year recovery period.
Adviser view
Paul Howard, owner of Reading-based Box Financial Planning, said: “From an employee’s point of view there is very little he can do about it if his pension scheme is in deficit.
“If the employer suggests sharing the point and increasing contributions, that would be a good idea.”
