Final salary pension deficits jump by £35bn in a month

The Pension Protection Fund (PPF) calculated that the aggregate deficit of 6,316 so-called defined benefit (DB) schemes – representing about 12m members – jumped to £236.6bn in March from £201.5bn in February

Repeated rounds of central bank easing have contributed to a sharp drop in the yield on British government gilts – a staple investment for pension funds – making it more expensive for funds to match income to liabilities unless they add riskier, higher-yielding assets to portfolios.

Britain’s top 100 firms have injected £12.7bn into their pension schemes to make up funding gaps, while several companies have closed their final salary pension scheme to new members or are freezing pensionable salaries, according to data from JLT Pension Capital Strategies.

“The underlying picture is clear: despite the huge sums that companies have paid into their pension schemes, deficits have got bigger,” Adam Boyes, a senior consultant at Towers Watson, said in a statement.

Benefits under these DB schemes are pre-determined using a formula based on salary and duration of employment.

The number of schemes in deficit increased to 5,080 – accounting for 80.4pc of the total DB schemes in the PPF.

The deficit is worse than last year, the PPF report said, when a deficit of £204.2bn was recorded at the end of March 2012.

“For some employers who closed their final salary schemes to new entrants a long time ago, this will be another reason to consider stopping existing members from building up further benefits as well,” Boyes said.

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