Defined benefit pension scheme deficits have jumped by £40bn over the last 12 months due to low gilt yields and market volatility over the summer, according to JLT Employee Benefits.
The company’s latest monthly index said the collective deficit of all private sector DB schemes increased from £207bn in 2014 to £247bn as of 30 September this year, with the funding level falling from 85% to 83%.
JLT said the Federal Reserve’s decision not to raise interest rates had done little to reduce volatility or scheme deficits.
Director Charles Cowling added: “Indeed, there are plenty of reasons to worry about the global economic growth. In Europe, Greece is still in dire straits, even if Tsipras’s decisive win at the general election should provide more political stability and reassurance that the reform plans will be delivered. Meanwhile, China, the world’s second economic power, continues to struggle to stay on the path to greater market liberalisation.”
With just under half of DB pension assets still invested in equities, pension schemes are exposed to a huge amount of market volatility, said Cowling, potentially leading to big losses that can further widen the deficit gap.
“Companies and trustees should continually be on the lookout for ways to reduce pension risk and explore any opportunity to de-risk their pension scheme,” he continued.
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