Defined Benefit  

Pension deficits jump £35bn in March

Pension deficits jump £35bn in March

The aggregate deficit of the 5,450 defined benefit schemes in the Pension Protection Fund 7800 Index rose by £35.3bn in March.

This meant the shortfall increased from £8.6bn in February to £43.9bn at the end of the following month.

Meanwhile the funding ratio decreased from 99.5 per cent at the end of February to 97.4 per cent in March.

At the end of March, the total assets in DB schemes were £1.65trn, while total liabilities were £1.69trn.

There were 3,267 schemes in deficit and 2,183 schemes in surplus, the PPF stated.

Andy Tunningley, head of UK strategic clients at BlackRock, said: "Liabilities rose over the month as UK long dated gilt yields fell in response to continued uncertainty over Brexit.

"While equities and other growth assets also rose, this was not enough to counter the headwinds of liability valuation increases meaning the PPF 7800 Index [funding ratio] fell by 2.1 per cent."

Boris Mikhailov, investment strategist, global investment solutions at Aviva Investors, explained that March was a "perfect storm" for gilt yields with global and UK-specific factors all playing their part in the fall.

He said: "With mounting fears around global growth pushing yields down in the US, Europe and UK, investors have fled to safety.

"In the UK, the increased uncertainty around Brexit has put further downward pressure on gilt yields. The other UK-specific factors included the reduction in index-linked gilts by the Debt Management Office as a proportion of new issuance, changes in the constituents of the index-linked gilt benchmarks, as well as the increased demand for conventional gilts from the Bank of England as it reinvests maturity proceeds from its asset purchase facility.

"Unless pension schemes are fully-hedged, for schemes that have their tri-annual actuarial valuations at the end of March, the fall in gilt yields would have locked-in worse off funding positions."

Other DB scheme indices also showed increasing shortfalls.

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 hike of £60bn in these schemes' deficits, to £260bn at the end of March.

maria.espadinha@ft.com