At 3:25pm on Friday last week there was an aggregate UK pension accounting surplus for the first time since FRS17 was introduced in June 2001. This landmark date marks more than a £50bn improvement in FRS17 scheme net valuations in two months.
Aon says there has been a remarkable degree of volatility in the aggregate deficit over the last three months, commencing with the largest single day increase in pension deficits of £11bn after market turmoil in China on 27 February 2007. At its recent peak, the aggregate deficit stood as high as £50bn in March 2007.
The aggregate deficit for the 200 largest pension funds has cleared whilst equivalent figures for FTSE100 companies also show an improvement to a surplus of £1bn. The improvements in the aggregate position for UK pension schemes has arisen primarily from increases in bond yields, the benchmark measure of pension scheme deficits for accounting purposes, although strong investment performance has also served to improve the position.
Aon Consulting senior consultant & actuary Marcus Hurd says: “This is a momentous day for UK pension schemes, because the average UK pension fund is now likely to be in surplus. Whilst FRS17 is only one measure of the pension funding position, this is clearly a significant move towards avoiding a future pensions crisis. Attention will now focus on those schemes, which are not in surplus and have uncovered pension liabilities of £18bn. With several equity markets at their highest level for several years and remarkable volatility in FRS17 valuations, it remains to be seen if the aggregate pension surplus will persist, but for now today is a good day for UK pension scheme.”