Surveys: Corporate Pension Funding Up in US, Down in UK

(May 05, 2011) – Two recent surveys paint differing pictures of the funding status of corporate pension plans based in the United States and United Kingdom.

According to a monthly report produced by BNY Mellon Asset Management, the funded status of the average US corporate pension plan rose 0.7% to 89.2% in April, marking the eighth consecutive month of improvement. This figure incorporates 2.6% return on assets offsetting a 1.8% rise in liabilities, according to a release from the global bank. The rise in liabilities is attributed to a decline in the Aa corporate discount rate to 5.50% from 5.61%.

"Plan sponsors are becoming increasingly optimistic as funding levels improve, putting them in a better position to make strategic decisions about current and future asset allocations," Peter Austin, executive director of BNY Mellon Pension Services, is quoted as saying in a company release. "An increasing number of plan sponsors are evaluating their prospects to further improve their funded status through return-seeking assets, such as alternatives and equities," he added.  

Things are not so rosy on the eastern side of the Atlantic, however. According to a study released by Xafinity Corporate Solutions, UK-based corporate pensions have seen their collective deficit rise by close to 19% since February, with this deficit now totaling £430 billion. The deficit was just £58bn in 2008, according to the company.

"This mark up of nigh on £100bn illustrates two lessons. First, costs can swing by very large amounts over very short periods – in this case, just the second half of April,” said Hugh Creasy, director of the company, according to a company release. “Second, it puts into context the Office of National Statistics (ONS) recent news over employer contribution hikes. The ONS tell us that employers have paid in around £16bn extra in contributions over the last two years, just one sixth of the interest rate hit."