The aggregate deficit of schemes in the PPF 7800 Index increased by £69bn over October, the Pension Protection Fund has revealed.
At the end of October 2018, the deficit stood at £107.7bn, compared to £38.7bn at the end of September 2018. The position has worsened from a year ago, when a deficit of £87.7bn was recorded at the end of October 2017. The funding level (assets as a percentage of s179 liabilities) of schemes decreased over this month from 97.7 per cent to 93.6 per cent at the end of October 2018. The funding level is lower than the 94.7 per cent recorded in October 2017.
Within the index, total scheme assets amounted to £1,588.2bn at the end of October 2018. Total scheme assets decreased by 1.6 per cent over the month and increased by 1.7 per cent over the year. Total scheme liabilities were £1,695.9bn at the end of October 2018, an increase of 2.6 per cent over the month and an increase of 2.8 per cent over the year.
The aggregate deficit of all schemes in deficit at the end of October 2018 is estimated to have increased to £212.8bn from £170.3bn at the end of September 2018. At the end of October 2017, the equivalent figure was £196.7bn. At the end of October 2018, the total surplus of schemes in surplus decreased to £105.1bn from £131.6bn at the end of September 2018. At the end of October 2017, the total surplus of all schemes in surplus stood at £109.0bn.
The number of schemes in deficit at the end of October 2018 increased to 3,755, representing 67.2 per cent of the total 5,588 defined benefit schemes. There were 3,437 schemes in deficit at the end of September 2018 (61.5 per cent) and 3,652 schemes in deficit at the end of October 2017 (65.4 per cent). The number of schemes in surplus decreased to 1,833 at the end of October 2018 (32.8 per cent of schemes) from 2,151 at the end of September 2018 (38.5 per cent). There were 1,936 schemes in surplus at the end of October 2017 (34.6 per cent).
Commenting, BlackRock head of UK strategic clients, Andy Tunningley said: “Perhaps aptly for the month in which Halloween falls, markets got spooked in October. 2018 seems destined to repeat itself, with a period of reasonable equity returns and improving funding levels being eroded by market volatility. As in February and August, October saw funding levels fall from previous highs to 93.6 per cent, lower than the start of the year, and the aggregate deficit of all schemes nearly tripled over the month to £107.7bn.
“Like these previous months, this was largely driven by falling asset values as a result of equity market volatility. Equity markets fell to levels not seen since the beginning of the year, driven by tighter financial conditions and elevated worries about the impact of heightened U.S.- China trade tensions, which also sent credit spreads wider. For pension schemes, asset falls were compounded by liabilities rising due to declining gilt yields (10 and 30-year yields falling c.13 and 4bps to 1.46 per cent and 1.91 per cent respectively) and increased inflation expectations (up 8bps to 3.35 per cent) reinforcing our call for trustees to build greater resilience into their portfolios.”