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Pension funds slip back into deficit

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Final salary pension funds in the UK have dipped back into deficit, new figures have revealed.

In July, the UK’s collective final salary funds recorded a moderate surplus of £7 billion.

But, the Pension Protection Fund (PPF) reports, August saw a more familiar picture. At the end of month, the 6,653 schemes monitored by the PPF were £54 billion in the red. Funds have been in deficit for the majority of the last two years.

The PPF put the slide down to a rise in the cost of paying for pensions, a consequence in part of lower returns delivered by government bonds.

In its report, the PPF said: “During the month of August, there was a 1.4 per cent increase in assets mainly due to rising UK and global equities.

“However, liabilities rose by 8 per cent due primarily to the significant fall in gilt yields.”

Given their dependency on the daily-changing value of their assets – shares and bonds – pension funds are subject to volatility.

A fund’s stock of assets creates the income required to meet the costs of accrued future pension payments. Should the level of assets needed to support pension payments decline below the value of those that are held by the fund, the scheme is determined to be in deficit.

Over the past two difficult years, the collective indebtedness of the UK’s final salary pension funds reached a nadir of £192 billion in March 2009. Its peak was a surplus of £53 billion recorded in March 2010.