DB pension deficit falls by almost £60bn in August – PPF

The combined deficit of UK defined benefit (DB) pension schemes in the Pension Protection Fund (PPF) 7800 Index fell to £140.5bn at the end of June 2020, down from the £199.5bn deficit reported in July 2020.

This represents a £59bn decrease in the aggregate deficit of the 5,422 schemes assessed in the index.

The fall was driven by a 4 per cent decline in liabilities, from £1,974.6bn to £1,895.2bn over the month.

However, assets also decreased during August, by 1.1 per cent from £1,775bn to £1,754.8bn.

The DB schemes’ funding level increased from 89.9 per cent to 92.6 per cent, with the increase attributed to rising gilt yields and equity prices.

According to PPF’s index, there were 3,506 schemes in deficit, down from 3,685 in July 2020, and 1,916 schemes in surplus, up from 1,737.

The deficit of the schemes in deficit at the end of August 2020 was £258.6bn, down from £306.4bn at the end of July 2020.

In comparison to August last year, the aggregate deficit had increased by £11.6bn from £129.9bn, while the funding level had fallen by 0.4 percentage points from 93 per cent.

Assets increased by £33.8bn over the year, while liabilities rose by £44.3bn.

Commenting on the findings, Buck UK head of retirement consulting, Vishal Makkar, said: “Despite a fall in the aggregate deficit this month, caused by a sizeable increase in gilt yields over August, the general economic outlook has continued to worsen. With no definitive roadmap to follow and the UK economy now officially in recession – one of the deepest in Europe – most scheme trustees are very much at the mercy of the financial positions of their sponsors.

“Since the start of the year Covid-19 has been the main factor driving instability worldwide and in the UK, but ultimately there is nothing that schemes can do about the impact of the virus on the economy. Even as the UK continues to ‘open up’, certain sectors remain heavily reliant on government support.

“All scheme trustees, especially those in sectors affected severely by Covid-19, should be watching closely for any new developments in government policy and ensuring that their planning remains as flexible as possible to deal with these changes.”

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