Market slump prompts record pension losses

Pension schemes experience highest five-day volatility on record
Monday posted the biggest single day loss on record - 27bn

LONDON, 05 March 2009 – The last five days have been the most volatile on record for UK final salary pension schemes, according to Aon Consulting, the leading employee risk and benefits management firm. In a week when world financial markets suffered huge volatility, the FTSE dipped to its lowest level in six years, and AA corporate bond yields have been erratic, Aon has calculated the knock-on effect for final salary pension schemes, as measured by company accounts.

Combined deficits for the UKís 200 largest defined benefit schemes over the last five days, as calculated by the Aon200:

Thurs 26 February 38bn
Fri 27 February 41bn
Mon 2 March 68bn
Tues 3 March 73bn
Weds 4 March 56bn

Commenting on the falls, Marcus Hurd, head of corporate solutions at Aon Consulting, said: ìThe past week has been the most volatile for final salary pension schemes since accounting standards were changed in June 2001. Monday posted the biggest single day loss on record, a huge 27bn, which dwarfed the previous biggest loss of 16bn on 15 October 2008.

ìDuring the past five days, the deficit peaked at a massive 73bn, the highest level since February 2006. This was prompted by the large losses in the equity markets and the 0.25% drop in corporate bond yields.

ìWe are seeing swings of unprecedented proportions at the current time. With one half of companies about to formally report their position at 31 March, this is a real concern. Depending on where markets settle at midnight on Tuesday 31 March, this will determine how companies report their balance sheets and 2009 profitability.

ìCompany Directors are facing a roulette wheel of pension scheme deficits and hoping that markets are at a high when the ball stops rolling. The levels of changes we are seeing are frightening even the hardiest Finance Director. A cool head and knowledge of all the options available are essential in these difficult times.î