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Pension deficits improve despite market falls

Pension scheme deficits have improved during August despite the market volatility over recent weeks according to Aon Consulting.

Rising bond yields and favourable investment returns have ensured that pension schemes are still better off over the course of the month according to Aon.
Over the month of August 2007, the largest 200 UK pension funds’ aggregate deficit reduced slightly from £13bn to £10bn. 

However, the underlying volatility of the deficit peaked at over £26bn but also fell below £1bn during the month.

During the peak of the market turmoil, around 10 per cent of schemes moved from surplus back into deficit.

Aon says the effect of the market downturn over the year has been dampened in pension schemes, because AA corporate bond yields, the benchmark measure of pension scheme liabilities, have steadily risen over the year. 

Aon Consulting senior consultant and actuary Marcus Hurd says: “This summer’s credit crunch fortnight posed a real headache for pension scheme managers. Despite market falls during the middle of August, however, pension deficits have actually improved over the month as a whole. Pension schemes are long-term investments and the overall impact of credit crunch has been small so far, but nevertheless, losing £25bn in ten days can be difficult to watch.
“It is likely that schemes will increasingly seek to de-risk at levels of funding that balance affordability with an acceptable degree of risk.  Once the target is established timing is critical, because, in volatile market conditions, the window of opportunity can be short lived and may not return for months or even years.”


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