Despite strong performance across most asset classes, pension liabilities in the United Kingdom have still managed to outpace the growth in pension fund assets.
KPMG’s 2013 Pensions Accounting Survey confirms that since January 2008, U.K. pension liabilities calculated on an IFRS basis have jumped by more than 60%.
This is primarily due to falling yields on AA corporate bonds, which are used to discount the value of future benefit payments under IFRS.
Over the same period, a typical pension fund portfolio invested in a combination of equities and bonds is likely to have returned closer to 40%, including reinvestment of dividends and coupons.
“It’s the now familiar issue that, however well assets perform, pension liabilities seem to grow even more quickly,” says Naz Peralta, director in KPMG’s pensions practice. “The issue is the same whether we consider liability measures for company accounts under IFRS, or for cash funding discussions.”