The best monthly stock market performance since October 2011 was not enough to stop defined benefit pension deficits from increasing during January, according to Towers Watson, a leading global professional services company.
The consultant estimates that the combined pension deficits of FTSE100 companies, as calculated for publication in their annual accounts, was £38 billion at the end of January, up from £35 billion at the end of December. Assets grew by almost £15 billion during January, helped by 6.4 per cent returns on UK equities, but liabilities increased by almost £18 billion over the same period.
John Ball, head of UK Pensions at Towers Watson, said: “Companies began the year expecting that the Retail Price Index (RPI) would be changed in a way that would reduce future payouts from final salary pension schemes. They had a rude awakening on 10 January when the National Statistician announced that this would not happen after all. FTSE100 companies’ pension deficits increased by about £20 billion that day.
“Because the markets were expecting a change to RPI, these savings were banked in the annual accounts for 2012 that companies will publish shortly. Unpicking the expected RPI saving leaves pension deficits bigger at the end of January than at the beginning, when they would otherwise have fallen significantly.”