Welcome to the HRDIRECTOR magazine online – bringing the latest Human Resources news, HR events, Human Resource jobs and features on a range of hot topics in Human Resources to senior HR professionals across the UK and internationally. Browse exclusive HR business news, articles, employment law updates, Human Resource case studies and HR director interviews. You can also search and apply for hundreds of senior HR jobs and senior Human Resources roles over £50k

Pension deficits have ballooned to the £100 billion landmark but the knock-on effects of the austerity measures announced in the Budget are likely to add to the woes of companies sponsoring final salary schemes over the next few years. However, in the long-term those measures will eventually start to erode the final salary debts of companies if the economy improves, according to Aon Consulting, the leading employee benefits and risk management firm. The aggregate pension fund deficit shown in company accounts for the 200 largest UK privately sponsored pension schemes increased from £88 billion in May to £100 billion at the end of June.

In the short term, the fiscal measures introduced in the Emergency Budget are likely to increase final salary pension scheme deficits. The reduced issuance of government securities (gilts) relative to previous expectations, combined with slower economic growth, are both likely to reduce the yields available on gilts and so increase the value placed on final salary scheme liabilities.  A 0.5 percent fall in gilt yields would increase the value of the Aon200 final salary scheme liabilities by circa £43bn to £143bn.

Over the longer term, however, as the tough economic measures take effect, financial conditions will change and those changes are likely to be more favourable to final salary deficit.  It is likely that the strengthening of the economy will lead to increased yields available on gilts and, thus, a reduction in the value placed on final salary liabilities.  An increase in gilt yields to 1.0 percent above current levels would reduce the Aon200 deficit to a mere £25bn from its current level of £100bn.

Commenting on the latest figures, Marcus Hurd, head of corporate solutions at Aon Consulting, said: "The government's mantra is that ‘we're all in this together,' and final salary pension funds are going to share the nation's pain.  A consequence of the tough financial measures introduced in the UK emergency budget is that deficits could increase in the short-term. This will be a bitter pill to swallow to companies who are already piling in billions of pounds to plug these deficits.

"Over the longer term, however, as the economy recovers, final salary pension funds should be one of the key beneficiaries. The immense importance of gilt yields to pension funds is such that a small change can have a dramatic effect. The economic recovery could be the saviour of the UK private sector pensions debt. "For those companies that can afford to take a long-term view of pensions, the UK emergency budget is short term pain followed by long term reward. The short term pain, however, may be too much to bear for some companies in difficult times."

Aon200 Index - The total FRS17/IAS19 surplus (or deficit) for the UK's 200 largest UK privately-sponsored pension schemes