defined benefit plans up 5% in second quarter but have fallen by 5% overall in past six months
The portfolio value of UK defined benefit (DB) pension plans rose by 5% in the second quarter of 2003. However, over the first six months of the year, it is still down by 5%, according to a study by actuarial consultant Towers Perrin.
The study, which used market-based assumptions for scheme liabilities, asset returns, and currency movements, found the average UK DB plan benefited from an improvement in equity markets during the quarter, while the bond market remained relatively stable.
A 15 basis point fall in corporate bond yields during the quarter resulted in a similar fall in the benchmark discount rate, which is used to estimate future asset returns, leading to a corresponding increase in liabilities.
However, this increase was offset by positive asset returns, leading to a 5% increase in funded status for the average UK DB pension scheme.
Nonetheless, at the end of the second quarter, the funding status of the average pension plan was still 43% down from the start of 2000.
'As a result of the negative capital market movements over the past three years, companies may be facing increased cash contributions to meet minimum funding levels for pension plans,' said Nigel Bateman, principal at Towers Perrin's Global Consulting Group.
'We are at an interesting point in the business cycle for investment returns. The tentative recovery in worldwide capital market performance during the second quarter of 2003 could be the signal that the worst is over but the recovery will have to be a sustained one.
'Unless and until this recovery continues, companies may be facing increased cash contributions and pension expense as well as potential balance sheet implications.'
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