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Pensions deficits grow by £20bn as stockmarket falls

The 5 per cent fall in stockmarkets increased pension scheme deficits by £20bn over May 2006 according to Aon Consulting.

But despite these falls, pension scheme funds are on average, better funded than at the start of the year.

This is because bond yields are still higher than as at the start of the year. Corporate bond yields rose from 4.7 per cent to 5.0 per cent and gilt yields rose from 4.1 per cent to 4.4 per cent between December 31 2005 and the end of May.

Based on the market movements in May, the total estimated deficit for the 200 schemes surveyed by Aon was £52bn at the end of May 2006, compared with £32bn as at the end of April 2006 and £72bn as at the end of 2005.

Aon senior consultant Paul Dooley says: “The stockmarket falls have been bad news for many pension schemes. However, we should not get carried away with this, as we know stockmarkets are volatile. The greatest risk for most pension schemes is actually a fall in long-dated bond yields. These yields are still higher than as at the start of the year and have more than offset the falls in stockmarkets over the year to date.

“Our analysis has shown that if a typical scheme holds half of its equity assets in alternative investments, such as property, hedge funds and private equity, it would be expected to see the same long-term returns with significantly less volatility.”


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