Labour best for groups plugging pension liabilities, says report

A Labour-led government could spell good news for employers struggling to plug record pension scheme deficits that have worsened under the coalition government, a new report suggests.

The report, published on Thursday, says that while the low-yield environment has been helpful for the government by holding down borrowing costs, it has proved a "challenge" for employers trying to close defined benefit pension schemes funding shortfalls.

In January, the total funding deficit of DB schemes soared to a record £367bn as gilt yields fell to historically low levels, although shortfalls have since recovered slightly.

DB pension schemes liabilities are calculated in reference to gilt yields - with falls in the assets leading to a corresponding widening in funding shortfalls.

The analysis, which looks at the how the election might affect corporate DB pension schemes, and suggests a Labour administration could help reverse liabilities of £1.5tn.

"A Labour-led government could see a rise in yields if markets grow suspicious that it will increase borrowing to fund public spending, especially if supported by the anti-austerity SNP," said the report by Cicero Group, a communications group and policy analysts, and the Pension Insurance Corporation, an insurer.

"Labour has attempted to reassure markets by saying that none of their manifesto commitments will be funded by unannounced borrowing and that it will reduce the deficit each year."

<

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.

Conversely, the report said a Conservative-led government, with its perception of fiscal discipline may hold down gilt yields, creating pressures on the liability side of the equation in the short term, "forcing sponsor companies to fill the gap".

However, over the longer term "fiscal rectitude - if maintained - could pay off in the shape of stronger economic performance and higher asset prices".

The report warned that the biggest election risk was a political statement that could cause short-term volatility in markets. "Trustees of DB schemes should therefore think carefully about what this election could mean for their scheme and its members," it said.

The aggregate deficit of the 6,057 schemes in the PPF 7800 index rose to an estimated £292bn at the end of March up from £248bn the previous month.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation