Pensions deficits reach new high, says PPF

The finances of the UK's final-salary pension schemes took a dramatic turn for the worse last month, figures show.

The Pension Protection Fund (PPF) said pension deficits reached a new high point in May, of £312bn.

It said that the collective deficit of the 6,432 defined-benefit schemes in the private sector jumped by £95bn that month.

This means that these schemes have only 77% of the assets they currently need to pay their pensioners.

In the past year the value of scheme assets has risen, from £989bn to £1,031bn.

But at the same time, the finances of many schemes have deteriorated sharply, because of a one-third rise in the estimated cost of paying for pensions, to £1,343bn.

The PPF explained that this was due to a further deterioration in the yield, or return, on government bonds.

"Over the month, 15-year gilt yields fell by 0.55 percentage points, which resulted in liabilities increasing by 7.6%," the PPF said.

"Over the year to May 2012, 15-year gilt yields were down by 1.73 percentage points," it added.

The valuation of pension scheme liabilities - their obligation to pay current and future pensioners - involves an assumption that the returns they earn for their members will be in line with the return on government bonds, even if the assets are more widely invested in shares, property and cash.

The National Association of Pension Funds (NAPF) has previously blamed the Bank of England's policy of quantitative easing for much of the recent ballooning of deficits.

The policy has been explicitly aimed at driving up the price of government bonds, which in turn depresses the returns they provide to investors, such as pension funds.

Only 929 of the 6,432 schemes monitored by the PPF are currently thought to be in surplus.

A year ago the collective deficit of all schemes was only £25bn.