The pensions gap for final salary workplace schemes has widened to a record £312 billion, according to the Pension Protection Fund (PPF).
The gap is the difference between the £1,031 billion assets the 6,432 schemes hold and the £1,343 billion they are contracted to pay out to retirement savers.
Thousands of schemes have slipped in to the red over the past 12 months – with schemes an average 23% underfunded.
Only 929 schemes are in the black – and despite total assets of all schemes rising from £989 billion to £1,031 billion poor yields on gilts and meagre stock market returns have left the pensions short of funds.
“Equity markets and gilt yields are the main drivers of funding levels. Scheme liabilities are sensitive to the yields available on a range of conventional and index linked gilts. Liabilities are also time-sensitive in that, even if gilt yields were unchanged, scheme liabilities would increase as the point of payment approaches,” said the PPF.
“The value of scheme assets is affected by the change in prices of all the major asset classes, not just equity markets. However, due to their weight in asset allocation and volatility, equities are usually the biggest driver behind changes in scheme assets.
“Over the month, 15 year gilt yields fell by 55 basis points, which resulted in liabilities increasing by 7.6%. The large rise in gilt prices offset nearly all the deterioration in equity markets, with assets falling by only 0.1%.
“Over the year to May 2012, 15-year gilt yields were down by 173 basis points and the FTSE All-Share Index fell by 11.3%.”
The government is now looking at recalculating the consumer prices index, the inflation measure that works out how much pensions are increased for the cost of living.
The paperwork exercise will reduce retirement payments and ease the financial stress on organisations to fund workplace pensions.