British firms are hoping the improved interest rates on bonds will continue to help them lower their pension deficit. According to JLT Employee Benefits, firms across the UK had a combined pension deficit of £414 billion in November, down from £500 billion in August. The August high came after the UK brought interest rates down to 0.25percent, a record low for the country. Despite the improvement, the deficit is substantially more than the £265 billion it was same time last year. The largest firms in the country are bearing the brunt of it, with the top 100 companies now behind by £160bn, which is almost twice what it was last year. British companies are struggling with pension repayments due to low interest rates, and are therefore struggling to pay employees on defined benefit pensions such as final salary schemes.
Though firms have largely discontinued final salary schemes, the employees that were on it are still owed accordingly. Though the rebound in the bond markets has brought a reprieve, it will take a lot more for the deficit to be undone. “Deficits have still almost doubled over the last 12 months and there appears to be no relief in sight for companies with large defined benefit pension schemes. Moreover, any current calm in markets may just be a temporary ‘eye-of-the-storm’ respite before the Brexit negotiations start in earnest,” said Charles Cowling, director of JLT. Companies such as BT, which has the second-worst funded pension scheme in the world according to MSCI, still have a long way to go.