The total deficit of the UK’s private defined benefit pension sector has passed £300bn for the first time, figures from JLT Employer Benefits have shown.
As of 31 May, total assets held by private DB schemes stood at £1.26trn. With liabilities at £1.57trn, that left a deficit of £310bn.
The pensions consultancy’s figures represented an increase of more than 20 per cent on last year’s deficit, which stood at £255bn.
The private DB sector is now 80 per cent underfunded.
Larger listed company schemes were in slightly better shape than the average, however, with FTSE 100 and 350 company schemes 85 per cent funded. But these numbers also represented a significant deterioration in funding levels.
The numbers come after MP Frank Field announced a parliamentary inquiry into the DB sector, which he said was “creaking from rising life expectancy and record low returns on capital”.
They also followed a government proposal to change the law to allow the British Steel Pension Scheme, and potentially other troubled schemes, to reduce their promises to members.
JLT Employee Benefits director Charles Cowling said conditions for DB schemes were “getting ever more challenging”, citing low interest rates and the looming EU referendum as cause for continued pessimism.
He said the government’s plans for BSPS was “unlikely to help most hard-pressed companies”, which cannot seem to keep deficits from spiralling “despite pumping ever more cash into schemes and taking action to reduce pension risks”.
There are no great prospects of imminent relief from markets either, as the nervousness surrounding the EU referendum is causing short-term volatility, added Mr Cowling.
“With interest rates looking to stay low for some time yet, it seems unlikely that pension schemes will benefit from either an exit or a remain vote,” he stated.
Claire Walsh, a chartered financial planner with Aspect 8, said fears over the sustainability of DB schemes were premature.
“I don’t think there’s any cause for panic at all,” she said. “I would never start recommending people transfer out of a DB scheme because of potential future policy. In general, having a DB pension remains incredibly valuable.”
Ms Walsh was sceptical that the government’s proposal for the British Steel Pension Scheme would become law, saying it would act as a disincentive for schemes to make up their deficit. She also questioned the accuracy of the method for calculating deficits.
james.fernyhough@ft.com
