In October, Carclo plc announced that the rise in its accounting pension deficit (as measured by IAS19) meant that it was no longer able to pay its interim dividend. An extreme case maybe, but pension scheme deficits are expected to weigh heavy on corporate balance sheets come the calendar year end.
The impact of Brexit on UK pension schemes has been a popular topic of discussion over the past few months. Much of this may have previously considered the balance sheet volatility that we might expect from a defined benefit pension scheme.
The difference this time is the sheer size of the swings and the real-world impact the accounting numbers can have.
We estimate that for a typical UK pension scheme the accounting position will have deteriorated from 90% funded to around 80% funded since 31 December 2015, driven by the double whammy of plunging corporate bond yields (which drive the discount rate for pensions accounting purposes) and rising inflation expectations.
So what can be done?
To find out, please download the full briefing note below.