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Pensions | View All

Top pension schemes face increasing risk of corporate insolvency
By Maryrose Fison | 09:37:00 | 21 October 2008

Equity price movements will have a 'significant impact' on pension schemes, with one quarter of FTSE 350 schemes exposing more than half of their assets to the stockmarket, says pension consulting firm Mercer.

Figures from Mercer’s latest research revealed a 21% decline in UK equities over the past 18 months.

But it said that despite the volatility, there had been an investment bias towards return-seeking assets, leaving exposure to equity market volatility accounting for a substantial portion of total risk.

Dr Deborah Cooper, principle in Mercer’s retirement business, said recent equity market falls had been ‘offset’ on an accounting basis by falls in liability values, meaning company balance sheet liabilities would not have increased by as much as was expected.

But she warned against complacency.

‘This will not always be the case. Those schemes most exposed to equity markets continue to present the highest risk to their sponsoring employer, especially with the uncertainty in global financial markets,’ she said.

‘Recent high profile corporate failures act as a stark reminder of the very real risk of sponsoring employers becoming insolvent, which could leave members with reduced benefits if funding levels are low,’ she added.

As of 30 September 2008, the aggregate funding level of the FTSE 350 was 100%. By contrast, the funding levels at 31 December 2007 and 30 June 2008 were 97% and 90%.



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