The combined deficit for UK defined benefit schemes fell by £40bn over the month of July, according to PwC’s Skyval Index.

The deficit dropped from £460bn at the end of June 2017 to £420bn at the end of July 2017. Total assets are currently £1,550bn and liabilities are £1,970bn. The Index is based on the Skyval platform used by pension funds, and provides an aggregate health check of the UK’s c.5,800 DB pension funds.

PwC chief actuary Steven Dicker said: “The funding liability at the end of July stands a little lower than the end of June so, with relatively static asset values, this has led to the third consecutive monthly decrease in deficit.” It means the proportion of liabilities covered by assets of UK pension schemes has reached its highest point since the autumn of 2014, at 78.7 per cent. However, the monetary value of the gap between assets and liabilities, at £420bn, remains higher than what it was three years ago.

“Part of this is due to schemes not being hedged against the fall in gilt yields, to what have been historically low levels. However, while this hedging would have reduced the disclosed deficit on the "gilts plus" funding approach, it is important to realise this wouldn't necessarily improve the actual long-term outturn for schemes,” Dicker explained.

In addition, JLT Employee Benefits has published its monthly index, which a combined pension deficit of £49bn for FTSE 100 companies. As at 31 July 2017, assets for the UK’s top 100 companies are £670bn, liabilities stand at £719bn, giving a funding level of 93 per cent. By means of comparison, the deficit at 31 July 2016 for FTSE 100 companies was £81bn, assets were £632bn and liabilities were £713bn, giving a funding level of 89 per cent. JLT Employee Benefits director Charles Cowling said markets continue to hold up despite a challenging political backdrop.

“As a result IAS19 pension deficits (the deficit that is recorded in a company’s accounts) have continued to drift lower. However these figures hide some pretty major problems. In recent days we have seen both Barclays and the massive USS pension scheme for university staff announce significantly increased funding deficits in their DB schemes. And it is the trustees’ funding deficit that drives contribution demands on companies. Those companies and pension schemes currently carrying out their 3-yearly actuarial valuation are likely to see significant increases in funding deficits and hence considerable demands for cash contributions.

“Additionally new accounting changes are currently being considered by the International Accounting Standards Board (IASB). This may appear a minor technical amendment to a part of the IAS19 standard (known as IFRIC 14) but it could result in many companies being forced to recognise a substantially greater pension liability on their balance sheets than at present. The IASB is currently carrying out some work to determine the impact of its proposed changes, but potentially it could add tens of billions of pounds of additional liabilities on to the balance sheets of UK companies.”

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