Company pension fund deficits are still a big headache, with FTSE 100 companies currently facing cumulative pension fund deficits of £47bn, according to JLT Pension Capital Strategies. In a way, this is good news because the deficit was the same this time last year, but it can fluctuate wildly, so taking a snapshot reading doesn't really tell the whole story. But what is clear is that defined-benefit pension schemes in the private sector are disappearing very quickly because they are expensive to run. And existing pension rights cannot be touched. So the problem of matching the books for some companies will take a long time.
There are several reasons why pension fund assets have failed to keep up with liabilities, including greater longevity. But the real killers have been low interest rates, poor equity performance and a drive to make pension fund assets as risk-free as possible.
And pension fund trustees are not even starting with a level playing field because not only have they to match income with liabilities, they also have to generate funds over and above to reduce the deficit of assets over liabilities. And since funds are now more invested in low-yielding/low-risk fixed income, the only other way to top up the books is by taking more money away from the company itself. And this has created problems, especially since legislation giving trustees much greater power in deciding what a company does with its cash.