Study: UK pension deficits hit new low

According to a new study, Britain’s top companies cut their pension deficits by £8.2 billion in January, down to £31.8 billion. This is the lowest pensions deficit since records began in 2002. The previous low was reached in April 2006 when the deficit fell to £34.3 billion. At its highest it reached £90 billion, in March 2003. The study, by Watson Wyatt, credits most of the decrease to higher bond yields, up by 0.15 percent in January, as well as to gains in the equities markets.

Pension deficits are carried as debt in a company’s accounting, and often companies have to divert money into retirement plans for their employees to balance the books. In other cases, companies either convert to less expensive plans or shut their pension plans down completely.

Pension funds commonly purchase bonds to meet their liabilities, but when prices rise and yields fall the fund accures a deficit. But when prices fall and yields rise, as has happened recently, the deficit in the fund declines. The other place where pension funds typically put their money is into equities shares. When those shares perform well, as is currently the case, deficits in the funds are reduced.

Deficits are expected to decline further as the year progresses, according to the report.

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