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Defined benefit pensions ’in black’

December’s stock market rally helped the UK’s defined benefit pension schemes end the year back in the black, figures have shown.

The country’s 6,560 defined benefit schemes, including final salary pensions, collectively had a £21.7 billion surplus at the end of December, according to pensions safety net the Pension Protection Fund.

The funding position was a considerable improvement on the £1 billion deficit at the end of November, while it was also up on the £6.6 billion surplus in December 2009.

The change was driven by a strong performance from global stock markets during the month, with the FTSE All-Share Index rising by 7%, contributing to a 3.4% rise in the value of pension schemes’ assets.

This gain was enough to offset a 1% increase in the liabilities pension schemes face due to a fall in index-linked gilts during the month.

But despite the overall improvement, 60% of defined benefit pension schemes still have a funding shortfall, with a collective deficit of £61 billion.

Defined-benefit pensions have become increasingly expensive to offer in recent years in the face of investment volatility and increased life expectancy.

The majority of companies have closed the schemes to new members, with many shutting them to existing ones as well. They are being replaced with less generous defined contribution schemes, under which the individual shoulders all of the risk of investment volatility and increased life expectancy.

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