Final salary schemes deficit grows

Wednesday 11th March 2009

The deficit on final salary pension schemes has worsened over February, to £218.7 billion, as companies struggle to fund the schemes.

The Pension Protection Fund (PPF), which bails out pension schemes in the event a company goes bust, said the position of almost 7,800 defined benefit funds – also known as final salary – deteriorated over the month.

Since January, another 91 have fallen into deficit, with 91 per cent of total defined benefit schemes now underfunded.

Liberal Democrat shadow work and pensions secretary, Steve Webb, said: "If the recession continues to deepen, the size of deficits in final salary schemes will keep growing.

"The PPF risks being overwhelmed by bankrupt schemes and may have to raise the levy on the remaining open schemes. This could prove to be the final nail in its coffin."

Falling returns on the stock markets have led to a 4.7 per cent fall in the value of assets, worsening the funding position of these schemes, the PPF said.

The situation is also likely to worsen next month, as the yields on gilts have fallen significantly since the Bank of England announced quantitative easing.

The PPF, which charges a levy on all pension schemes to provide an emergency fund for schemes that fail, has come under increasing pressure recently.

An increase in the number of firms collapsing, many with large gaps in their pension schemes including Woolworths and Lehman Brothers, has left the PPF with a £517 million deficit itself, as of last year.

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