Pension deficits: Are things really all that bad?

Follow this link if this email is not displaying correctly DAILY BULLETIN Wednesday 2 November 2016 Dear Gutenberg, We've talked at length about the potential changes in UK monetary policy this week, but Evil Knievil has brought up another angle today. In the current climate, a number of pension funds are running deficits, but a shift in interest rates would see a substantial change in the value of their liabilities. You can read Evil's full opinion below, along with his views on the Daily Mail and Caribbean Investment Holdings. One area where there might be growing cause for concern is the UK retail sector. Results in the last few months have been better than feared, but the devaluation of sterling could eat into consumer spending, and markets are offering significant discounts on debt from a number of chains. This could prove to be solely linked to those individual firms' prospects, but it may be worth keeping an eye on. Pension deficits: Are things really all that bad? by Evil Knievil | Evil Diaries | 2 mins. to read I had a very interesting conversation with David Cowen, FD of Molins (LON:MLIN), yesterday. For as readers may recall I have begun seriously to doubt the widespread reports that company after company is insolvent because of deficits in their pension funds. I am certainly not an actuary but in essence computation of a surplus or deficit depends upon a number of factors. They are: life expectancy, the rate of inflation to be expected, the yield and capital gains to be expected from the portfolio and, above all, the cost of annuities to guarantee the payment of a pension. This last figure depends upon the yield on gilts where, as I think readers will agree, an entirely absurd state of affairs obtains as a result of Quantitative Easing. Surely, QE will cease and a yield of the order of 4 or 5% p.a. will apply. Therefore it is wise for the authorities to give a revised and higher yield for gilts to allow pension fund trustees to behave sensibly. 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