The Bank of England’s financial repression and the eurozone debt crisis continue to take their toll on the UK’s private pension funds.
Lowlights from the latest Pension Protection Fund report:
M&G’s Bond Vigilantes reckon that’s a record.
More from the report.
Understanding the impact of market movements
Equity markets and gilt yields are the main drivers of funding levels. Scheme liabilities are sensitive to the yields available on a range of conventional and indexlinked gilts. Liabilities are also time-sensitive in that, even if gilt yields were unchanged, scheme liabilities would increase as the point of payment approaches. The value of scheme assets is affected by the change in prices of all the major asset classes, not just equity markets. However, due to their weight in asset allocation and volatility, equities are usually the biggest driver behind changes in scheme assets.
Liabilities increased over the month by 6.1 per cent reflecting the impact of lower gilt yields, with 15-year gilt yields falling by 20 basis points. Assets rose by 0.7 per cent over the month because rising bond prices more than offset the impact of falling equity markets (the FTSE All-Share Index fell by 0.9 per cent during November 2011).
Over the year to November 2011, 15-year gilt yields were down by 116 basis points and the FTSE All-Share Index fell by 0.9 per cent.
Of course it is not just pension funds that are affected by rising corporate pension deficits. It will also put pressure on companies to lift contributions rather than spend cash on creating jobs and expanding.
Pension fund accounting, don’cha just love it.
Pension shortfall nearly doubles in September – FT