New crisis looms for final salary pensions

Final salary pension schemes could face a new crisis if proposals relating to the calculation of funding levels get the go ahead, warns Aon Consulting.

The firm of consultants claims that although the 200 largest UK privately-sponsored final salary pension schemes moved into a surplus at the end of February the future of such schemes looks bleak due to proposals from the Accounting Standards Board and The Pensions Regulator.

According to Aon, these schemes moved from a combined deficit of £12 billion at the end of January to a surplus of £21 billion at the end of February.

However, the Accounting Standards Board (ASB) has proposed that companies should record pension deficits in their company accounts related to risk-free rates. In addition, The Pensions Regulator has suggested UK companies adopt a more prudent mortality assumption for funding purposes.

Aon claims that together these proposals would add almost £200 billion in liabilities to these 200 schemes.

Marcus Hurd, senior consultant and actuary at Aon Consulting, said: “There are two sides to the final salary story in February: on the positive side, after record falls in January, schemes have recovered to record levels of surplus. However, the double whammy of ASB proposals and the Regulator’s proposed mortality assumptions throw the future of final salary schemes into further doubt.”