UK DB pension scheme liabilities 35% of market capitalisation

by Gill Montia

Story link: UK DB pension scheme liabilities 35% of market capitalisation

The liabilities of FTSE 350 final salary pension schemes, as shown in their company accounts, have reached 35% of their sponsoring companies’ combined market capitalisation, Aon Hewitt reports.

The proportion is at its highest ever, having increased significantly over recent months as equity markets remained at relatively low levels.

According to Aon Hewitt, the rise in liabilities is largely due to extremely low gilt yields which helped take the FTSE 350 pensions accounting deficit to £77 billion at the end of June, an increase of 40% since the start of most companies’ accounting year (31st March 2012), and up from £20 billion at 31st March 2011.

John Belgrove, principal consultant in the investment consulting team at Aon Hewitt comments: “It’s clear that pension scheme liabilities are set to remain at historic highs while current market conditions persist, so we are seeing sponsors increasingly looking towards agreeing flightplans with trustees to agree common goals and objectives.”

He adds: “In particular, we are also seeing increased interest in implemented flightplans, where investment and trigger decisions are delegated to a third party to take swifter advantage of market opportunities.”