The total deficit of all corporate defined benefit funds in the U.K. increased 5.4% in May, to a record £310 billion ($453.7 billion) and by 21.6% for the year ended May 31, said JLT Employee Benefits.
In its latest update, JLT said the funded status of these pension funds had dropped to 80% from 81% as of April 30 and 83% as of May 31, 2015.
Assets increased 1% during the month to £1.263 trillion as of May 31, but fell 1.6% for the year ended May 31. Liabilities increased 1.9% over the month, to £1.573 trillion, and by 2.3% over the year.
FTSE 100 company pension funds saw their deficits increase 6.4% to £100 billion over the month of May, and by 25% over the year ended May 31.The funded status of these pension funds was flat over the month, at 85%, but dropped from 87% as of May 31, 2015.
“Pension scheme deficits have reached record levels, with the total deficit for all U.K. private-sector pension schemes exceeding the £300 billion mark for the first time in May,” said Charles Cowling, director at JLT Employee Benefits, in a statement accompanying the data. “Conditions are getting ever more challenging for pension schemes with prolonged low interest rates and uncertainty in the market ahead of the EU referendum” on whether the U.K. should leave the European Union.
Mr. Cowling referred to a current consultation by the U.K. government into potentially allowing benefits to be reduced in extreme circumstances, “but this is unlikely to help most hard-pressed companies, which can’t seem to keep deficits from spiraling despite pumping ever more cash into schemes and taking action to reduce pension risks.”
Mr. Cowling added that while sponsoring employers may wish to look for opportunities to reduce risk and settle pension fund liabilities, they might want to wait until the outcome of the U.K.’s vote on whether to remain in the European Union. The vote takes place June 23.