The total deficit of all the defined benefit (DB) pension funds in the UK stood at £420bn at the end of July, a £40bn decrease since last month, according to figures released today (1 August) from PwC.
PwC’s Skyval index provides an aggregate health check of the UK’s 5,800 DB pension funds. The current Skyval index figures show pension fund assets at £1.6trn and liabilities of just under £2trn.
Despite this improvement, many defined benefit schemes are showing record deficits, with the Universities Superannuation Scheme having the largest pensions deficit of any UK pension fund at £17.5bn.
JLT Employee Benefits' figures reflect a similar picture. Its monthly index, using the standard accounting measure (IAS19) used in company reports and accounts, showed the total assets of all private sector defined benefit schemes were £1.6trn with liabilities of £1.8trn and a deficit of £183bn.
For FTSE 100 companies their pension assets total £670bn with liabilities at £719bn and a deficit of £49bn.
This situation has improved since 31 July 2016 with the deficit of all companies being £258bn and £81bn for FTSE 100 companies.
Charles Cowling, director, JLT Employee Benefits, said markets continue to hold up despite a challenging political backdrop, meaning pension deficits recorded in a company’s accounts have continued to drift lower.
“However these figures hide some pretty major problems," he said.
"In recent days we have seen both Barclays and the massive USS pension scheme for university staff announce significantly increased funding deficits in their DB schemes.
"And it is the trustees’ funding deficit that drives contribution demands on companies.
"Those companies and pension schemes currently carrying out their 3-yearly actuarial valuation are likely to see significant increases in funding deficits and hence considerable demands for cash contributions.
“Additionally new accounting changes are currently being considered by the International Accounting Standards Board (IASB).
"This may appear a minor technical amendment to a part of the IAS19 standard (known as IFRIC 14) but it could result in many companies being forced to recognise a substantially greater pension liability on their balance sheets than at present."
Steven Dicker, PwC’s chief actuary, said the proportion of liabilities covered by assets of UK pension schemes has reached its highest point since the Autumn of 2014, at 78.7 per cent.
"However, the monetary value of the gap between assets and liabilities, at £420bn, remains higher than what it was three years ago."
Responding to concerns over the financial security of some defined benefit schemes with large deficits, Malcolm Mclean, senior consultant at Barnett Waddingham, said: "The general feeling in the pensions industry is there is no DB crisis and there is always the lifeboat of the Pension Protection Fund."
The Pension Protection Fund recently reported a healthy financial position in its the annual report with invested assets up from £23.4bn to £28.7bn with fewer than expected claims in what has been an eventful year for pensions, including the collapse of retail store BHS pension scheme and a green paper on the future of defined benefit pensions.
Meanwhile, tens of thousands of savers are continuing to encash their DB schemes with one administrator, JLT Employee Benfits processessing £750,000 of transfer payments each working hour and, paying out £100m of transfers each month.
