Defined Benefit  

Pension deficits fall by £14.5bn

Pension deficits fall by £14.5bn

The aggregate deficit of the 5,450 defined benefit schemes in the Pension Protection Fund 7800 Index decreased by £14.5bn in January.

This meant the shortfall fell from £23.1bn in January to £8.6bn at the end of February.

Meanwhile the funding ratio increased from 98.6 per cent at the end of January to 99.5 per cent a month later.

At the end of January, the total assets in DB schemes were £1.60trn, while total liabilities were £1.61trn.

There were 3,117 schemes in deficit and 2,333 schemes in surplus, the PPF stated.

Final salary plans had moved into surplus in November after the pensions lifeboat changed the way funding levels are calculated, but it did not take long for them to slump back into an aggregate deficit.

According to Andy Tunningley, head of UK strategic clients at BlackRock, pension plan funding levels rose by 0.9 per cent during February, as government bond yields moved higher resulting in a fall in liabilities.

He said: "While risk assets continued to bounce back following last quarter’s sharp declines, gains in equity markets were offset by gilt yield rises and spread widening.

"With this increase, the PPF funding level for the average pension scheme is once more close to surplus following December’s sudden fall back into the red."

Mr Tunningley noted that "rhetoric from central banks around the world continued to be dovish, with US investors in particular reassured by the Fed’s indication that they would not be hiking rates any time soon".

He added: "This combined with positive noises coming out of the US/China trade talks drove US equities around 7 per cent higher over the month.

"Closer to home, despite ongoing uncertainty around the outcome of the Brexit negotiations, the FTSE 100 rose back above 7,000 on 1 February and remained above that level throughout the month."

Other DB schemes indices also showed improvements in the shortfalls.

JLT Employee Benefits' monthly index showed an improvement of £20bn in the deficit of all UK private sector DB schemes, according to the standard accounting measure (IAS19) used in company reports and accounts.

This means these pension funds had a shortfall of £82bn at the end of February, which compared with £102bn in January.

The PwC Skyval Index – which provides an aggregate health check of the UK’s 5,450 corporate DB pension funds, based on the 'gilts plus' method widely used by scheme actuaries – registered a decreased of £10bn in these schemes' deficits, to £200bn at the end of February.

maria.espadinha@ft.com