Total U.K. pension deficits decreased by an estimated 43% in 2006 to £41 billion ($80.6 billion), according to an Aon Consulting study of the U.K.'s 200 largest pension funds. The improvement was largely attributed to strong U.K. equity returns and rising bond yields. Roughly a quarter of the pension funds studied are expected to see at least an 8% improvement in their funding levels, although some will see a deterioration as they close off their 2006 accounts, according to the study.
"Companies with high exposures to U.K. equity are likely to see significant improvements in their deficits for 2006, while those with high bond or overseas equity exposures could see no improvement at all, particularly if they are also revising their life expectancy assumptions," Andrew Claringbold, principal at Aon, said in the report. "It will be interesting to see whether those companies that have benefited significantly from the favorable U.K. equity returns over 2006 will maintain their exposure to this market or decide that now is the time to reduce risk."