UK Pension Schemes End Year with a Surplus

December 30, 2008 ( - Despite losing more than £70 billion in assets over the year, Britain's biggest company pension schemes ended the year with a £3 billion surplus.

The Press Association reports that the top 200 privately-sponsored final salary pension schemes swung into the black from a £2 billion deficit at the end of last year, according to Aon Consulting research. Aon said that pension funds have technically benefited from a rise in the yields of highly rated corporate bonds from 5.75% to 6.7% on average over the past year (see UK Pension Schemes Improve Despite Market Volatility ).

Aon warned that the surplus gives a false impression of the health of the UK’s pension funds after what has been a terrible year for investments. “Companies are now faced with a dilemma of whether or not to disclose the full extent of the surpluses they are supposed to show,” said Marcus Hurd, head of corporate solutions at Aon Consulting, in the news report. Pension funds have the ability to either recognize their surpluses in full, or hold some back by citing exceptional circumstances as being the cause of the surplus.

“As one half of UK companies are about to prepare company accounts, the fact that the accounting standards still show a surplus feels like black comedy – it’s odd that these are the same standards that only a few years ago were criticized for showing artificially high deficits,” Hurd added.

Reports on U.S. pension plan funding also note that asset losses will be offset by liabilities falling slightly due to the higher discount rate used in their computation (see S&P Sees Coal in 2008 Pension Funding Stocking and 100 Largest Pensions Face Record Loss in October ).