David Prosser: Bond slide hits pensions
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.Outlook: Stock markets may be rising at last, but they're not doing so quickly enough to bail out employers with expensive final salary pension schemes.
BT said this week that its pension deficit had almost doubled in the past three months, but it is far from being the only company in difficulties. Figures from Aon Consulting, due to be published today, will show that the 200 largest private-sector employers with final salary schemes now have a collective deficit of £73bn – and before the market gains of the past fortnight, the figure had reached £90bn, close to the worst figure on record.
It's the corporate bond market that is wreaking all the havoc. Schemes value their liabilities on the basis of prevailing yields on blue-chip corporate bond yields. These have slumped over the past three months, as perceptions about the risk of defaults on debt at the higher-quality end of the corporate sector have eased.
The bad news is that yields have further to fall before returning to the levels typically seen before the onset of the credit crunch – such a decline would add another £40bn to the collective deficit.
Sponsors of pension schemes still heavily invested in equities can but hope that the bull run continues, offsetting the cost of falling yields. For those risk-averse schemes that have sworn off the volatility of the stock market, the outlook is stormy.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments