Pension liabilities to see 45 per cent rise

26 October 2009 11:18 am | By Helen Pow

In June, corporate bonds yields were experiencing their highest spreads since the Great Depression. 

Corporate bond yields have since reversed and, using an updated yield of 5.5 per cent and an increased inflation outlook, Xafinity estimates liabilities will increase to £1.2trn by December. 

Experts are expecting further yield reductions which will push up liabilities even further. 

Xafinity warns that despite increases in equity markets, liabilities are outstripping gains in assets over the year. It says any set backs in equity markets before the end of the year will exacerbate the deficit position.

Corporate solutions director Robert Hunt is urging UK companies to get a true handle on their current position.

He says: “At the moment it looks like liabilities are winning - up by around 45 per cent over the year, compared to the FTSE All Share Index which is up by around 27 per cent.

“The introduction of additional allowances for future mortality improvements at the end of the year is another factor that could increase liabilities.

“If current trends continue, this could add 2-3 years to the average life expectancy of pension scheme members leading to an increase in liabilities of around 8 per cent.

“Add in the gearing effect and you could see a very significant increase in the deficit disclosed in your year end accounts.”

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