The funding shortfall faced by defined benefit pension schemes eased slightly last month on the back of rising stock markets.
The UK’s 7,400 defined benefit pensions, including final salary ones, saw their funding blackhole improve to £158.1 billion at the end of last month, down from £200.1 billion in June, according to pensions safety net the Pension Protection Fund.
The improvement was driven by a recovery in global equity markets, leading to a 3.8 per cent jump in the value of assets held by pension schemes. Higher gilt yields also helped to cut the value of the liabilities schemes face, by 1.9 per cent.
But the value of pension schemes’ assets has still fallen by 1.6 per cent during the past year, while schemes’ liabilities have soared by 15.2 per cent during the same period. As a result, pension schemes are in a far worse position than they were 12 months earlier, when their collective deficit stood at just £18.8 billion.
Around 85 per cent of pension schemes are currently in deficit, after 196 schemes managed to return to a funding surplus during July.
The ongoing funding problems is expected to lead to an increasing trend among companies to close their final salary pensions to existing staff.