Rising gilt yields see PPF 7800 deficit more than half

Written by Natalie Tuck
13/02/18

Rising gilt yields causing a fall in liabilities has helped the PPF 7800 deficit to fall by more than half over January, the Pension Protection Fund has revealed.

Over January, the average deficit of the schemes in the PPF 7800 Index was £51bn, down from £103.8bn at the end of December 2017, a drop of 52.8bn. This position has also considerably improved from January 2017, when a deficit of £196.5bn was recorded.

The funding level of schemes increased over this month from 93.9 per cent to 96.9 per cent at the end of January 2018, and is also higher than the 88.2 per cent recorded in January 2017. Within the index, total scheme assets amounted to £1,575.5bn at the end of January 2018. Total scheme assets decreased by 0.9 per cent over the month and increased by 7.4 per cent over the year.

Total scheme liabilities were £1,626.5bn at the end of January 2018, a decrease of 3.9 per cent over the month and a decrease of 2.2 per cent over the year. The PPF noted that conventional 15-year gilt yields rose by 21 basis points, while index-linked 5-to-15 gilt yields rose by 26 basis points over the month, contributing to the decrease in liabilities.

The aggregate deficit of all schemes in deficit at the end of January 2018 is estimated to have decreased to £174.2bn from £210bn at the end of December 2017. At the end of January 2017, the equivalent figure was £266.6bn. At the end of January 2018, the total surplus of schemes in surplus increased to £123.2bn from £106.3bn at the end of December 2017. At the end of January 2017, the total surplus of all schemes in surplus stood at £70.2bn.

The number of schemes in deficit at the end of January 2018 decreased to 3,493, representing 62.5 per cent of the total 5,588 defined benefit schemes. There were 3,710 schemes in deficit at the end of December 2017 (66.4 per cent) and 4,262 schemes in deficit at the end of January 2017 (73.6 per cent). The number of schemes in surplus increased to 2,095 at the end of January 2018 (37.5 per cent of schemes) from 1,878 at the end of December 2017 (33.6 per cent). There were 1,532 schemes in surplus at the end of January 2017 (26.4 per cent).

Commenting, BlackRock head of UK strategic clients Andy Tunningley said: “Both bond and equity markets were fast out of the blocks at the start of this year - and their price swings helped the PPF 7800 index aggregate funding level bounce higher to 96.9 per cent from 93.9 per cent at the end of December. The funding level improvement would have been much greater had the upward trajectory of equity markets not given way to a severe bout of volatility at month end. In the end, the loss incurred to pension scheme asset values from falling equity markets was more than offset by a fall in liability values due to rising gilt yields, so the net result was for pension scheme funding levels to improve.”

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