U.K. Pension Deficit Could Top $178B

May 1, 2009 (PLANSPONSOR.com) - April pension deficit figures for Britain's largest 200 firms could go beyond £120 billion ($178 billion), according to consulting firm Aon Corp.

Business Insurance reports that pension deficit figures for April calculated according to FRS 17 accounting standards show a £28.3 billion ($42 billion) improvement from March to £7.6 billion ($11.28 billion). FRS 17 is used for pension accounting on corporate balance sheets and is based on the assumption that investment returns will be in line with yields on corporate bonds, the news report explained.

However, Aon said pension fund trustees’ valuations use a more prudent measure based on government bond yields or swaps, and big disparities in corporate and government bond yields have resulted in significant differences between the valuation outcomes. Aon said trustees would calculate the April corporate pension deficit bill at €127 billion ($168.30 billion) instead of the FRS 17 level of €7.6 billion ($10.07 billion).

The news report said Sarah Abraham, consultant and actuary at Aon, noted that if the deficit was removed over 10 years, extra contributions could amount to between £20 billion and £30 billion ($29.68 billion and $44.52 billion). “However, given that many employers will not be able to afford such high contributions, we are likely to see extensions in the period over which deficits are removed,” she said, according to Business Insurance.