UK finds it hard to pay pension fund liabilities

LONDON - Reuters

Pension funds’ ability to pay an income to retirees is becoming increasingly strained as rising life expectancy pushes up liabilities, limiting the benefit of a recovery in assets, a new report has found.
Global pension fund assets rose 3 percent to nearly $31 trillion at the end of 2011, a third consecutive year of recovery since a 17 percent slump at the height of the financial crisis in 2008. But according to TheCityUK, the financial services lobby group that compiled the study, the value of assets relative to liabilities has dropped by 17 percent since 2007.

“The size of liabilities poses a major challenge to the funding of defined-benefit pensions in the U.K. and across the globe,” TheCityUK said.

Defined benefit schemes commit to paying workers a set proportion of their salary when they retire, unlike defined contribution schemes, where payouts depend on investment performance and how much employees pay in.

Across the developed world and particularly in the U.K., more and more defined-benefit schemes are closing to new members as increased longevity makes them costlier to run for companies.