UK pension schemes helped by credit crunch - Aon

LONDON, Oct 1 (Reuters) - UK company pension schemes are an unlikely beneficiary of the market turmoil caused the subprime mortgage crisis, according to research by Aon Consulting.

The aggregate funding level of the largest 200 UK defined-benefit pension funds has swung to a surplus of 5 billion pounds ($10.15 billion) at the end of September from a deficit of 10 billion pounds at the end of August, said Aon Consulting, part of Aon Corp. (AOC.N: Quote, Profile, Research).

A major factor driving the pension funds' swing into the black is the falling value of AA-rated corporate bonds, which firms use as a benchmark measure for valuing their pension liabilities, it said.

As the value of these bonds has fallen, due to rising fears of default among investors, so the cost of liabilities in firms' pension schemes have been reduced, Aon said.

"Corporate bond spreads are at a five-year high, which has reduced the value placed on pension scheme liabilities," said Marcus Hurd, a senior consultant at Aon.

Many firms have seen their pension schemes inch back towards surplus after having gone deep into the red following the bear market in equities in the early 2000s, contribution holidays taken by many sponsors and growing life expectancy.

Just over half of the schemes tracked by Aon's monthly research are now in surplus, Aon said.

But Hurd injected a note of caution. "Pension scheme funding has appeared to improve in company accounts because the benchmark has been lowered, not because of any real improvement in the financial condition of pension schemes."

He said: "It remains to be seen whether this will be a long lasting reduction to the benchmark of if it will revert to the previous levels."