China turmoil fuels pensions volatility

The turmoil in the markets, originating in China during late February,
resulted in the highest single day increase in deficits under FRS17 of £11bn.
This prompted a resurgence in volatility levels, according to Aon, and weekly
deficit changes of £10bn have been common.

In the past year, UK pension deficits have tumbled by 45% to £26bn, and
British companies with 31 March accounting year ends will benefit from the
improvement, according to
Aon.

“£10bn swings in the national deficit have occurred from one week to the
next,” said Marcus Hurd, senior consultant and actuary at Aon. “Companies
reporting a few weeks earlier would have reported losses over the year at a time
when the national deficit was almost double its current value at £50bn. This
shows the shortcomings of using a short-term basis to measure long-term
obligations under FRS17.”

While the overall pensions deficit has dropped over £40bn over the previous
two years, this masks the underlying volatility.