THERE was a surprise drop in Scottish final salary pension scheme shortfalls last month on the back of a rally in the value of equities and Government bonds.
However, this is being seen by analysts as a blip rather than the start of a sustained recovery.
Analysis by actuarial firm Buck Consultants revealed the pension deficit faced by Scotland's biggest companies decreased by £1.3bn in March from just
under £2.9bn the previous month.
Fraser Smart, director of the northern region at Buck, said a pick-up in markets last month led to a rise of £1bn in the value of scheme assets. Schemes were also boosted by a slight decrease in liabilities of £300m due to a decrease in expected future inflation to 2.65%.
However, Smart warned that this improvement was unlikely to last. He said: "I won't pretend this is the start of a trend. Pension scheme deficits are very sensitive to any changes in market conditions. Continuing market volatility is causing quite dramatic swings in the status of schemes."
The FTSE 100 ended February at 3,830 but by the end of March it had increased to 3,926, which improved the worth of pension schemes.
Meanwhile, Government bonds gained around 5% in value.
Fraser explained that the Bank of England's quantitative easing had helped to push up the value of fixed-interest Government bonds but the same was not true of the value of corporate bonds.
Graeme Forbes, a chartered financial planner with Intelligent Benefits, said firms must brace themselves for the full effects of quantitative easing, which is yet to "wreak havoc" on schemes. There is concern that easing will distort the bond market in the longer term.
He said: "Quantitative easing will inevitably reduce bond yields in due course. Along with the spectre of inflation in two to three years, some prudent schemes are already pricing in a significant increase in liabilities."
According to the Pension Protection Fund, the industry safety net, UK companies have a combined deficit of almost £219bn in their final salary schemes.
Smart also warned that the move by companies to reduce payments into employee defined contribution schemes, as announced by Aon last week, is worrying as most are already "woefully" underfunded.
