According to the official pension scheme safety net, the collective deficit of the UK’s final salary pension schemes hit £195 billion in December 2008.

Figures released by the PPF (Pension Protection Fund) shows that deficit rose by 43% after it hit its previous record of £136 billion in November last year. This compared to figures just one year ago, whereby the 7,800 mainly private sector schemes measured by the PPF had nearly £12 billion surplus.

The rise in the cost of paying pensions in December far outweighed the value that scheme assets rose by.

The PPF have said that: “During the month of December 2008 there was a 3.6% increase in assets due to rising UK and global equities.
“Meanwhile, lower gilt yields in general led to an increase in liabilities of approximately 10%”

Funding for the pension schemes is extremely fickle, shown by the fact that only 11% of schemes (a total of 823 schemes) were surplus last month, when as recently as March last year 3,000 schemes had been in surplus.

The dramatic difference in numbers has been mainly attributed to the international credit crunch, worldwide economic slowdown and the slump of share prices that has inevitably fallen alongside this.

On top of all these things, there has been a poorer return on bonds, which are used to work out the value of the assets that the pension scheme need to be able to pay pensions in the future.

The PPF also said that: “Over the year to December 2008, the FTSE All Share Index fell by 32.8% and 10-year gilt yields were down by 116 basis points.”

All this means that UK employers have yet one more financial problem on their plates to worry about as the economy goes into a recession.

Whenever a scheme that has been revalued and revealed to be in deficit by its actuaries, the employer must put a plan in place in order to restock the fund with  extra payments and usually bring it back to surplus within a decade.

However, last month the PPF and the Pensions Regulator warned that the final salary scheme was becoming more and more risky. One of the things they pointed out was the declining value of scheme assets, and also the rising possibilities that more firms will go into administration, and eventually going bust next year, which would leave a huge hole in their pensions funds.

Woolworths pension scheme became one of the biggest calls yet on the PPF last December, when the chain of stores closed, and the company’s pension scheme was £147 million in deficit.