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Defined benefit pension deficits predicted to increase twelve-fold by end of year

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Employers still offering defined benefit (DB) pensions could face a twelve-fold increase in pension deficits - taking the total to 689 billion by the end of this year - according to pension experts.

Xafinity Corporate Solutions predicts by the FTSE will finish at around 4,000 points and bond yields could fall to 4.75 by the end of the year, and the downward movement of corporate bond yields will ‘greatly affect' the funding and accounting of DB schemes.

Even if the FTSE recovered to 5,000 points Xafinity predicts the UK pension scheme deficit would still reach £583 billion.

The news follows an announcement from BP, that from April 2010, new joiners to the firm will have to join a defined contribution pension scheme as the defined benefit provision will close to new members.

Rob Hunt, director and senior actuary at Xafinity Corporate Solutions, explained: "We often hear the expression - it's a pension scheme with a businesses attached. For many companies funding their pensions scheme presents significant problems and, in difficult economic times we do not see this problem easing. To put it in context, a £689 billion deficit is the equivalent to nearly 40% of the UK's GDP.

"Companies should not be lulled into a false sense of security at this time with high returns on corporate bonds keeping their liabilities down."