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29 Jul, 2010 - Pensions Gap
At its
low point in March last year, the FTSE100 index fell to a low of
3,500. Over the last few days, the index has been reaching the
5,300 level, 51% higher than March 2009. Investors who put it into
shares in the spring of 2009 can feel smug and happy. They have
benefited from a spectacular gain.
The trustees in charge of pension funds should feel relieved. When
shares were at their lowest point last year, pension funds were in
an awful position - their investments had collapsed in value and
the returns on bonds to pay out pensions were low.
However, last year's bull run in equities should have narrowed the
gap between assets and liabilities. Pension funds should be out of
the woods or at least be able to see the light.
But pensioners shouldn't think that all problems will just simply
go away by a run in a bull market, it is still a tough time for
final salary pension schemes. For example, Citigroup this week sent
clients a report under the unambiguous title 'UK Pension Problems
Haven't Gone Away'.
FTSE 350 companies pension liabilities are just over £500bn.
However, combined deficits are £72bn. This is a huge gap
between assets and liabilities.
For firms worried about holes in their pension funds, there has
been one recent piece of good news: it is being suggested that
annual increases in payouts from final salary schemes should rise,
at most, in line with the Consumer Prices Index rather than the
Retail Prices Index. This should go some way in reducing the
deficits in pension funds.
If you would like more information on pensions and retirement
planning, please click
here.
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