Defined Benefit  

UK pension deficits drop £250bn in five months

UK pension deficits drop £250bn in five months

The deficit of all the defined benefit (DB) pension funds in the UK stood at £200bn at the end of April, a decrease of £250bn when compared to November.

PwC’s Skyval index, based on data from 5,800 DB schemes, showed pension fund assets at almost £1.6trn and liabilities close to £1.8trn.

According to Steven Dicker, PwC’s chief actuary, this reduction in pension shortfalls is due to three key factors.

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The first one is due to the fact that the Pension Protection Fund (PPF) changing its assumptions to measure DB pension deficits, which dropped 55 per cent as a result of the alteration.

In December, the pensions lifeboat adopted the Purple Book 2017 dataset, which is based on a more up-to-date list of schemes, excluding for example those that have entered PPF assessment, and it also uses more recent funding information, it said.

Increases in long-term real interest rates and revised mortality projections adopted by pension scheme trustees are the remaining factors which contributed for the large deficit decrease.

Mr Dicker said: “However, the funding level is likely to remain volatile throughout 2018 as Brexit negotiations and economic uncertainty continue.”

PwC’s Skyval index figures are based on the ‘gilts plus’ deficit method, which assumes that the expected return on assets can be derived as the sum of the risk-free rate of return (typically assumed to be the return on gilts), and the risk premium expected to be achieved as a reward for holding riskier assets.

The decrease in pension deficits has also been reported by JLT Employee Benefits, which saw schemes shortfalls drop £19bn in February, standing at £105bn at the end of the month.

According to the company, FTSE 100 companies have been trying to decrease their pension deficits, pouring £10.8bn into their schemes in the first six months of 2017.

maria.espadinha@ft.com