11 October 2011 Last updated at 12:38
Pension funds could be hit by the Bank of England’s decision to inject more money into the economy
The UK’s pension schemes have moved further into the red for a second consecutive month, the Pension Protection Fund (PPF) has said.
The deficit of the 6,533 final-salary schemes in the private sector deepened to £196bn at the end of September from £117bn at the end of August.
There were 5,345 schemes in deficit and 1,188 schemes in surplus, it said.
The continued fall in the value of shares hit the health of the pension funds.
The FTSE all-share index fell by 6.1% during September.
Over the year, the yield – or return – from UK government bonds has also reduced. As a result, this inflated the cost of paying for pensions in the future.
Last week, the National Association of Pension Funds (NAPF) warned that the Bank of England’s decision to inject a further £75bn into the economy through quantitative easing (QE) would hit the financial state of pension funds.
QE tends to push down the yields on long-term bonds.
“Turbulent share prices and feeble investment returns have sent many pension funds deeper into the red. It is yet more pressure on final salary schemes in the private sector, and they are closing their doors to staff at an increasing rate. The deficits could get worse when the latest round of quantitative easing feeds through,” said Joanne Segars, chief executive of the NAPF.
“But these figures are only a snapshot, and do not reflect the long-term health of pension funds. Pension investments work over a long timeframe, and are well placed to smooth out market volatility.
“Private sector workers in a final salary pension should not get too worried. The pension rights they have already banked are well protected, and will not be hit by weak market conditions.”