U.K. pension funds are facing a widening deficit, according to a news release from F&C Asset Management. Liabilities are increasing much faster than assets; yields on U.K. long bonds fell sharply to 0.48% as of Jan. 17, from 0.77% on Jan. 1. As a result, bond prices have risen by about 12.5%, Derek McLean, head of F&C's insurance asset management and asset liability management in London, said in an interview.
"When viewed in the long term, assets will outperform and meet liabilities," Mr. McLean said in the interview. "But increasingly in the last couple of years, mark-to-market accounting has forced pension funds to consider liabilities in terms of what the solvency (rate) is today.
"What pension funds need to do is to be more conscious of their liabilities and more fluid in hedging those liabilities," Mr. McLean said.