Volatile ride for UK pensions deficit

Things looked better for
hard-pressed sponsors of UK defined benefit (DB) pension schemes at
the end of October, consultancy Aon Hewitt has reported, with the
combined deficit of the country’s 200 largest listed companies at
£69bn ($110bn), its lowest level in 13 months. The deficit at the
end of September 2010 stood at
£80bn.

Working in favour of DB
scheme sponsors in October was a firmer equity market, while bond
yields, the benchmark measure for valuing scheme liabilities,
remained relatively stable.

Indicative of the sensitivity
of the deficit to variations in the major variables determining it,
Aon Hewitt estimated that to eliminate it completely would require
either a 20% rise in the equity market.

Also required would be a rise
in corporate bond yields to 6% from their current level of 5.15%,
or a decrease in projected long-term inflation to 2.5% from its
current 3.35%.

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