It has come as a welcome relief this week for both potential and current investors of pension schemes, that after countless months of negativity, the financial position of final salary pension schemes in the UK has improved sharply over the past two months according to reports by the Pension Protection Fund (PPF).

Reasons for the Increase?

Such news has come at a time when it has recently been announced that the UK has emerged from the recession, with economic growth being recorded at 0.1% over the last 3 months of 2009. The PPF acknowledged this as a contributing factor in the fortuitous rise of pension schemes positions, but also stated that improvements could also be down to higher share prices and improved returns on government bonds (gilts).

With a direct impact on personal pension plans, the financial recovery has yielded higher returns on UK government bonds, which in effect has meant that the cost of paying for pensions in the future has dropped by nearly 6%.

Volatile Market

Over the past two years especially, pension planning and investment has been a particularly cautious topic for many people as pension fund finances have been extremely volatile.

Pension funds are susceptible not only to the fluctuation of assets traded on the financial markets, they also respond to assumptions used to estimate the cost of supplying future pension plans. The emergence of a huge deficit within the economy, that according to experts cannot be effectively controlled, has led many employers to close the doors on all final salary pension schemes, which has also had direct repercussions for financial investment and pension planning.

With the potential volatility ringing in many people’s ears, and recent announcements calling for over 65’s to carry on working, the news of strong equitable returns and rising gilt yields from investment schemes has been more than a welcomed sigh of relief for pension members.