The aggregate deficit of the around 5,500 defined benefit (DB) schemes in the Pension Protection Fund (PPF) 7800 Index has increased to £115.6bn at the end of March, when compared to February’s values.
This represents an increase of £43.5bn when compared to the previous month’s figures of £72.1bn.
The funding ratio decreased from 95.6 per cent at the end of February 2018 to 93.1 per cent.
Defined benefit schemes’ total assets were £1.57trn, while total liabilities were £1.68trn.
There were 3,796 schemes in deficit and 1,792 schemes in surplus, the PPF said.
The increase in deficits was driven by a 19 basis point fall in the yield on conventional 15-year gilts, the pensions lifeboat said.
The impact of lower equity prices on asset values was mostly offset by the increase in bond prices, it added.
In the private sector, DB schemes shortfalls have improved in the last couple of months.
According to Boris Mikhailov, investment strategist, global investment solutions at Aviva Investors, fears over a potential trade war between US and China had led to more volatility in the equity market.
He said: “The Trump-instigated trade war fears have dominated the headlines in March, creating a seesaw effect on global financial markets with equity markets plummeting and safe heaven assets, such as gilts, rallying.
“In the UK, the continuing demand for gilts from pension schemes and the Bank of England’s asset purchase facility embarking on its £18bn reinvestment programme, were also major forces driving up gilt prices over the month.
“The sharp correction in equity markets, where the FTSE All-Share fell by over 2 per cent, will have caused some pain to the balance sheets of many pension schemes.
“However, what would have really hurt was the fall in long-term gilt yields of around 20bps per annum. This is because, on average, pension schemes are still only hedging around a third of its interest rate risks, so any movements in long-term gilt yields would have three times more impact on its liabilities than the assets.”
Nathan Long, senior pension analyst at Hargreaves Lansdown, argued that with “gilt yields at such low levels, even small movements can feed through into what looks like a big shift in pension liabilities”.
He said: “It is important to remain calm in the face of liability rises, especially if they are only driven by short term sentiment.
“There is certainly no need for people to panic and start rushing for the exit of their final salary pension. Transfers away from such schemes remain niche and are rarely in the best interests of members.”
The pension deficit of FTSE350 companies has narrowed significantly in the first quarter of this year, falling £4bn, according to data from consultancy Mercer.
The deficit had already fallen £8bn in 2017 and now stands at £72bn at a funding level of 91 per cent.
maria.espadinha@ft.com
