Aggregate DB pension deficit falls by £21.4bn

The aggregate defined benefit (DB) pension scheme deficit fell by £21.4bn to £65bn in January, the Pension Protection Fund’s (PPF) latest 7800 Index has revealed.

The funding ratio rose from 95.5 per cent at the end of December 2020 to 96.5 per cent at the end of January 2021.

Assets declined during the same period, from £1,834.1bn to £1808.4bn, although this was offset by liabilities decreasing from £1,920.5bn to £1,873.4bn during the month.

The fall in assets and liabilities was attributed to a decline in bond and equity markets.

Of the 5,318 schemes assessed by the PPF, 3,149 were in deficit and 2,169 were in surplus.

The deficit of the schemes in deficit at the end of January 2021 was £212.4bn, down from £230.3bn at the end of December 2020.

PPF chief finance officer and chief actuary, Lisa McCrory, commented: “Our latest 7800 Index funding position has improved to 96.5 per cent in January 2021, slightly above pre-pandemic levels of 95.9 per cent in January last year.
“A fall in bond and equity market indices over the month led to a decline in the value of assets and liabilities. However, overall we’re seeing an improved position for UK DB schemes to start the year.”

Buck UK head of retirement consulting, Vishal Makkar, added: “There was a marked decrease in the aggregate deficit during January, even as markets continued to feel the effects of the pandemic and a prolonged winter lockdown in the UK. January also saw political turmoil in the United States around the inauguration of President Biden and disruption to equity markets as the dramatic rise and fall of Gamestop stock created further volatility.
“Short-term shocks aside, the ongoing economic effects of the pandemic present a greater challenge for DB schemes as businesses suffer, potentially endangering employer covenants.

“There does, however, appear to be light at the end of the tunnel. The UK’s successful vaccine rollout continues at pace and over 18 per cent of the UK population has received at least one dose so far.

“This is particularly encouraging news for some of the UK’s hardest-hit sectors, such as hospitality. If this early vaccine success can be maintained and the economic challenges surrounding Brexit can be navigated, then there are reasons to be cautiously optimistic for 2021.”

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