Pensions black hole shrinking

Bank rate hike helps boost funds value

A BLACK hole in company pensions has shrunk by £36billion in the space of a month.

The Bank of England’s rate hike last November – and the prospect of more to come – has had a dramatic impact on the size of the shortfall in thousands of retirement schemes.

The gap between the value of assets and long-term payouts to pension fund members still stood at a colossal £174bn at the end of January.

But the deficit was down from £210bn at the end of December, £92bn smaller than a year ago and the lowest for nearly four years.

A decade of rock-bottom rates is one reason why pension scheme black holes ballooned. However, the Bank’s base rate rise has improved returns on government IOUs, known as gilts, and lowered pension schemes’ expected liabilities. The findings came in an update from industry body the Pension Protection Fund, which looked at nearly 5,600 schemes covering 10.5million members. The number in deficit was the lowest in a decade, falling from 3,710 to 3,493 last month. A further 2,095 schemes were in surplus to the tune of £123bn, up from £106bn at the end of December.

The research came before a recent slump in share prices, which will have hit the value of pension scheme assets.

However, gilt yields have risen after Bank of England Governor Mark Carney last week hinted at an earlier than expected rate rise. Pensions expert Tom McPhail, of Hargreaves Lansdown, said: “The likely upward trend in interest rates should help to reduce deficits and today’s numbers may become part of a longer-term improving picture.”