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Daily Post: Shares slump wipes £15bn off pension schemes

Jan 22 2008
By Nicky Burridge

A record £15 billion was wiped off the value of the UK’s biggest pension schemes on Monday as global stock markets dived, figures showed today.

The fall was the biggest loss recorded in a single day since the accounting standard FRS17 was first introduced in June 2001, according to Aon Consulting.

The group said a further £9 billion was knocked off the value of the UK’s biggest 200 defined benefit schemes this morning, leaving them collectively facing a £42 billion deficit.

Pension schemes have lost around £40 billion in the past week due to stock market movements, wiping out all of the gains made during 2007, and Aon warned that worst could still be to come.

Marcus Hurd, senior consultant and actuary at Aon Consulting, said: “The significant increase in deficits has arisen primarily from world stock market crashes. However, the worst could not be over and we could see further damage to the value of pension schemes when the US market opens today.

“The fact that corporate bond yields have also remained relatively stable has also added to the impact. Usually the yields offset the impact of equity market falls by increasing during an equity market fall. This has not as yet happened.”

But he added that while the falls were alarming, they were only of immediate concern to companies that were looking to either settle their liabilities in the short term or who had to report on the value of their scheme’s deficit.

He said: “Many companies have recently reported their deficits at 31 December and so will have narrowly escaped the agony of watching their quoted balance sheet deteriorate over a matter of days.

“This will be of great concern, however, to the many companies which are due to prepare annual accounts at 31 March.”

But on a brighter note, oil giant BP announced that it planned to take a contribution holiday of at least one year following a review of its pension scheme that showed it was 136% funded.

The group said in September that the fund had assets worth £14.7 billion, with liabilities of £10.8 billion.

It is allowed to take a contribution holiday if its assets are worth more than 115% of the liabilities the scheme faces.

BP said it would monitor the scheme’s funding level on a monthly basis and would resume contributions in 2009 if the funding level had fallen below 115%.

It is thought the move, which follows a similar announcement in October by oil firm Royal Dutch Shell that it was to take a contribution holiday from its UK scheme, will save BP around £250 million a year.

Nigel Peaple, policy director at the National Association of Pension Funds, said: “As pension funds are long-term investors, there is no reason to believe short-term stock market falls will have a significant impact on workplace pensions.

“In any case, pension funds invest in a range of assets, so to some extent, they are cushioned from such movements.

“Recent volatility will also not affect the ability of schemes to pay the pensions due to their members.”

A recent survey carried out by the NAPF found that around 55% of defined benefit scheme assets are invested in equities, down from 60% in 2006.

http://www.dailypost.co.uk/news/breaking-news/2008/01/22/shares-slump-wipes-15bn-off-pension-schemes-55578-20380403/

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