The deficits of the UK’s biggest defined benefit (DB) pension schemes have further increased by £13bn in January despite a 6.5% rise in the UK stock market.

The estimated deficit for the FTSE 350 DB schemes was £75 bn, the equivalent to a funding ratio of 88%, at 31 January 2013, compared to a deficit figure of £62bn at the end of December 2012.

Mercer’s Pensions Risk Survey also showed that pension scheme liabilities rose over the month from £588bn to £610bn, while assets increased from £526bn to £535bn.

Immediately after the Office for National Statistics (ONS) announced that the retail prices index would remain unchanged, Mercer reported that pension deficits were estimated to have increased by £20bn, reflecting an increase in the market’s view of long-term inflation, said Ali Tayyebi, Mercer’s head of DB risk in the UK.

The deficits have increased despite the fact that equity values have increased dramatically in January. We can only guess at what the deficits would have been had the stock markets around the world not increased by 6.5% or more.

“This will be frustrating for many as the strong rise in equity values by itself may have raised thoughts about ‘locking-in’ some of those gains if it were not for the fact that this has not come through in overall improvements in the funding position,” said Tayyebi.

We, at deVere, believe the DB pensions will continue to deteriorate in 2013.

Nigel Green deVere Group

Blog written on February 8th