Tuesday, Nov 10, 2009
Is this good? Who knows.
BBC: Pension fund deficits 'slashed'
Pension fund deficit has been slashed by 34% in one month as rules have been changed "anyone seeking a guaranteed return to pay pensions, for many years in the future, does not have to put quite as much aside to cover the cost. " This is due to corporate bond prices falling, and yields increasing.
Posted by stillthinking @ 05:34 PM (683 views) Add Comment
4 Comments
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1. stillthinking said...
I have absolutely zero faith in the UK pension funds ability to fulfill their obligations.
2. Pensiondeficits. . . said...
This article doesn't really explain what pension cos do and explains the changes badly. They usually discount their liabilities using an AA corporate bond yield. These have been falling all year which makes defined benefit decifits appear higher. If you assume a generic pension plan's assets are made up of a blend of equity and bonds, over this calendar year the plan should be up since equities are higher and bonds have also risen in value. But this is totally offset by the discounting of the liabilities at a much lower rate, so the deficit should actually be worse over this year. This BBC piece reports that liabiliaties are being discounted differently. They seem to be being discounted using a HIGHER yield, effectively inflating the liability away. You cannot keep doing this (moving the discount rate higher) and at some point the pension plan deficit needs to be closed...
3. enuii said...
Lets see from a quick read of the article the Pension Protection Fund (PPF) has altered the assumptions it uses to calculate scheme surpluses and deficits, if it had not changed its financial assumptions in October, then the deficit of the schemes would in fact have risen by £20bn to £169bn. The PPF has asked the insurance companies this summer how much they were quoting to pension schemes to sell them bulk annuities to whcih the reply came back that the cost of providing these annuities had fallen in the past year because the prices of corporate bonds had gone down. The effect of these little changes has been to knock £71bn off the theoretical value of assets needed by final-salary schemes to fund their pension promises. Companies with Pension schemes in defecit have extended their recovery plans to over eight years, compared to six years quoted before and with more of the money being "back-end loaded".
This all sounds a bit convenient for certain parties and looks to me like the accounting elastic has been fully stretched out as far as it will go based on some rather tenuous assumptions!
4. paul said...
It's not like the BBC to paint an overly rosy picture of the economy in a crude and rather transparent attempt to influence purchasing behaviour. Not like them at all. No siree.