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FTSE100 pension
schemes are £18bn in surplus at the end of the third quarter
of 2008, according to Pension Capital Strategies Limited (PCS).
PCS’ updated analysis shows that the schemes have added £20bn
since this time last year, and at the end of June 2008 they had
an £8bn deficit. PCS managing director, Charles Cowling, said
this suggests an enjoyable, profitable third quarter, although schemes
must not become complacent.
“In the last few days and weeks we have seen unprecedented
conditions in financial markets. The fact that accounting rules
may show a positive impact on pension schemes from this market turbulence
does not mean that these are easy times for pension schemes,”
Cowling explained. “We have seen an improvement in pension
surpluses because the accounting value of the pension liabilities
has fallen even more than the pension scheme assets.”
Cowling said that AA corporate bonds have been hit hard by the recent
market turbulence, and this “is not a good reason to regard
your pension liabilities as suddenly being a lot lower”.
PCS also revealed that there is a growing trend to show that pension
schemes’ considerations of buy-outs have been hit by the recent
market turbulence.
“We are aware of a number of large buy-out deals that have
been cancelled or postponed in the last few weeks. We believe this
is largely because of the difficult financial conditions –
a buy-out deal that might have been attractive if the pension scheme
had a surplus may become far less attractive if the pension scheme
is in deficit.”
Cowling explained that recent trauma in the markets has also affected
the confidence of some trustees, leading them to ask “difficult
questions” about the strength and stability of banks and insurance
companies.
“On the surface, therefore, pension scheme funding problems
may be hidden by deficient accounting rules. But the task of de-risking
UK pension schemes continues to be very challenging. Moreover, unless
there is a significant improvement in markets we expect pension
risk and funding problems to become more apparent in coming months,
possibly straining both shareholders’ funds and the Pension
Protection Fund (PPF),” Cowling concluded.
- Pensions Age
October 2008
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