A report by Aon Consulting has found that FTSE 100 pension deficits have fallen to their lowest level in three years, which could reduce the size of the Pension Protection Fund this year.
At the end of March, the total estimated deficit for 200 defined benefit schemes polled was £48 billion, compared with £73 billion at the end of February. A large proportion of the Pension Protection Fund levy in 2006/2007 is related to the size of pension deficit as at March 31st 2006, so the levy could be a lot lower than originally thought.
Aon believe that one of the reasons for the fall in deficits is a strong performance by UK equities, which rose by almost 4% in March, which removed around £10 billion, while a rise in long-dated bond yields of about 0.3% cut deficits by around £15 billion.
Our view
Company pension funding is not an easy problem to solve. They have been a real political 'hot potato' over the last few years, employers tried to give their employees a good pension and Labour changed the laws on funding them creating huge strains with many employers having to close as they could not afford to meet shortfalls when investment performance was poor.