Gordon Brown's decision to abolish tax relief on dividends to pension funds in 1997 has cost the 200 largest defined benefit pension schemes £20bn, claims Aon Consulting.
Research into the total deficit of the top 200 schemes on a Financial Reporting Standard 17 (FRS17) basis, reveals the shortfall is at its lowest monthly level since records began at just £14bn, with 30% of schemes now in surplus.
However, Aon says if the ability to reclaim Advanced Corporation Tax (ACT) on dividends had not been removed the 200 largest pension schemes would be in surplus by £6bn, and 40% of schemes would be over-funded. I
n the latest research from its monthly tracker of scheme deficits, Aon says although the FRS17 deficit is now only £14bn, volatility is still high as it points out weekly changes of around £5bn are still common.
Joanne Segars, chief executive of the National Association of Pension Funds (Napf), says the recent findings backs up other survey evidence which shows an improving funding position for DB pension schemes, including falling deficits; record employer contributions; and schemes returning to surplus.
She adds: "While funding pressures remain, and the cost of providing DB pensions will rise with improving longevity, today's report is good news for occupational pensions".
But Marcus Hurd, senior consultant and actuary at Aon Consulting, says while one third of pension schemes are now in surplus, he points out the volatility still remains and as a result the pension crisis is not yet over.
He says: “The impact of the volatility of pension scheme valuations on employers’ balance sheets continues to be a major cause for concern. The aggregate pension scheme deficit is £14bn, but if ACT relief for pension schemes had been retained theme the same UK schemes would be in surplus by £6bn.”
“Pension schemes will continue to rue the day that ACT relief was removed.”
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