PPF scheme deficit increases in August

PPF scheme deficit increases in August

The aggregated deficit of the 5,588 defined benefit (DB) schemes in the Pension Protection Fund (PFF) has increased 4 per cent in August, according to latest figures.

The deficit of the schemes increased to £65.3bn at the end of August 2018, from a deficit of £62.8bn at the end of July this year, as funding levels decreased slightly to 96.1, from 96.3 per cent.

Total assets of the DB schemes meanwhile increased to £1.627trn in August, from £1.621trn in July.

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At the end of August 3,562 of the schemes were in deficit and 2,026 schemes were in surplus compared with 3,537 and 2,051 respectively at the end of July.

The PPF publishes monthly estimated funding positions on an s179 basis for the defined benefit pension schemes potentially eligible for entry to the fund.

A scheme’s s179 liabilities represent the premium that would have to be paid to an insurance company to take on the payment of PPF levels of compensation.

Tom Selby, senior analyst at A J Bell said: "The accounting deficits of defined benefit schemes can fluctuate significantly over short time periods – even small shifts in gilt yields can increase or reduce the estimated value of pension liabilities by billions of pounds.

"Advisers are unlikely to be perturbed by short-term movements such as this and will instead focus on the long-term goals and income requirements of their clients.

"Pension deficits will inevitably continue to weigh on scheme sponsors, however, and more schemes will likely tumble into the PPF, with high street retailers in particularly struggling to stay afloat in a challenging market environment."

Andy Tunningley, head of UK strategic clients at BlackRock, said: "Trustees should be thinking about their schemes in a more holistic manner to avoid portfolio shocks.

"Trustees should focus on risk management; the hedging of liabilities; the risk drivers of return; the potential for cashflow strain; plus in the current environment currency hedging - particularly pertinent given the swings we have experienced as a result of no real Brexit news."

He said this would ensure that schemes don’t de-risk too early and have the ability to capture upside.

He added: "We see potential upside surprises to consensus – particularly as market participants currently fear that quantitative tightening will drain liquidity and put pressure on risk assets."