DB funding - June 2020: PPF index sees small deficit reduction

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PPF 7800

The aggregate deficit for defined benefit (DB) schemes in the Pension Protection Fund (PPF) 7800 Index fell by £1.5bn over the course of June.

At the end of the month, liabilities amounted to £1.95trn, up by £5bn, while assets increased by £6bn to £1.78trn, with a deficit of £175bn.

Overall, the funding level improved by ten basis points (bps) to 91%.

The movements reflected small changes in the markets, with 10-, 15- and 20-year fixed-interest gilt yields improving by 0bps, 3bps and 5bps respectively. The five-to-15-year index-linked gilt yield fell by 1bp.

In equities, the FTSE All-Share Total Return an All-World Ex-UK Total Return indices rose by 1.5% and 3.3% respectively.

Four fewer schemes were in deficit at the end of the month, totalling 3,617, but with a combined deficit of £288bn. The 1,805 schemes in surplus were overfunded by an aggregate of £113.2bn.

PPF chief finance officer and chief actuary Lisa McCrory said: "This month the 7800 Index shows that there has been little change in the aggregate funding level despite the day-to-day volatility in both the equity and bond markets.

"This will come as some relief to pension schemes, but we expect funding levels will continue to see significant volatility in the short term."

Mercer

The accounting deficit of defined benefit (DB) pension schemes for the UK's 350 largest listed companies increased from £72bn at the end of May 2020 to £90bn on 30 June, according to Mercer.

This comes as the effects of the Covid-19 pandemic continue to influence market movements.

Liabilities reached £957bn at the end of June, up £24bn from 31 May, while asset values were £867bn - a £6bn increased compared to the corresponding figure for the end of May.

Mercer chief actuary Charles Cowling said: "Pension deficits worsened again in the last month and compared to 12 months ago, as market turmoil continues to affect pension schemes. Trustees need to understand the financial challenges facing businesses as the virus remains prevalent.

"Now is the time trustees should look to reduce risk. While coronavirus lockdown measures are easing across Europe, the global outlook remains bleak."

Skyval

The aggregate gilts-plus funding position of the UK's defined benefit (DB) schemes deteriorated by £30bn over the course of June, according to the PwC Skyval Index.

The UK DB pension deficit reached a total £270bn over the course of June.

The latest Skyval index figures are:

PwC chief actuary Steven Dicker said: "As we begin to emerge from lockdown, scheme sponsors and trustees will wish to move their focus to the longer term and ensure they have a robust future funding plan - for many this will mean rethinking their strategies and resetting their journey plans.

"Pension liabilities continue to be volatile and, as in recent months, we're seeing variations in the underlying drivers. The deterioration in the funding position in June is largely due to a small increase in long-term inflation expectations rather than the falls in asset values or long-term interest rates we have seen in previous months."

He concluded: "Different schemes and sponsors have weathered the crisis differently, so the issues they face and options available to them will vary widely. However, the key is arriving at an approach which maximises the chance of members' benefits being paid in full, in the most capital efficient way possible."