Pension deficits shoot up

In the United States the aggregate deficit of S&P 1500 companies grew $59bn (£38bn) in the first half of the year to $543bn, the consultancy Mercer said.

Corporate America is sitting on total liabilities of $2.09 trillion against total assets of $1.55 trillion, Mercer added.

The picture is no less bleak in Britain, where the combined deficit of FTSE 100 companies more than doubled over the past year to £41bn, actuarial firm Lane, Clark & Peacock (LCP) said in a separate report.

This is despite companies having poured £11bn into schemes over the last year in an attempt to plug the deficit, LCP said.

Total liabilities of blue chip British companies stand at £447bn against total assets of £406bn, LCP’s analysis of 83 of the FTSE 100 companies showed.

The demands on company pension pots have been increasing because people are living longer, meaning schemes are obliged to pay out to workers for longer after they retire.

At the same time, the returns the pension funds make on investments are shrinking because of volatile financial markets and historically low bond yields, used to assess liabilities, which are calculated using benchmark yields such as those on top-rated corporate bonds. Low yields lead to bigger liabilities, hence more deficits, because pension funds will need more assets to pay sufficient income to pensioners in the future.