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12Bn knocked off pension deficits in July

July’s surge in equity markets and bond yields saw a fifth wiped off the pension deficits of FTSE 100 companies.

This is the biggest reduct- ion in a single month since October 2003. It resulted in 12bn being cut from blue-chip pension deficits, leaving a 55bn funding gap.

However, the aggregate fall in FTSE 100 pension defi- cits for the year so far is only 1bn, as falling bond yields increased the value of liabilities on an FRS17 basis for much of the first half of the year.

Watson Wyatt senior consultant Stephen Yeo says FTSE 100 companies typically have between 60 and 65 per cent of their pension funds in equities, enabling them to benefit from gains in the market, including 3 per cent in July alone.

He says employer contributions to company pension schemes reached a record 22.5bn in 2004 – more than five times the amount contributed by individuals, which at 4.1bn was itself a new high.

Norwich Union finance director Mike Urmston says any reduction in pension deficits is good news because he fears they have held back markets recently.

Urmston says: “It is good news because the UK market has been held back by the overhang of pension deficits.”

Yeo says: “One swallow does not make a summer and the fact that nearly 20 per cent was wiped off pension deficits in one month shows how much they can fluctuate.

“It is the first time for a long time that both equity and bond markets have gone in the right direction.”

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