DB pension deficit falls for first time in 2020 - PPF

The combined deficit of UK defined benefit (DB) pension schemes in the PPF 7800 Index
has decreased to £128.5bn at the end of April 2020, following three months of consecutive increases.

Despite the recent fall, the deficit has still increased by almost £100bn since the start of the year, when the deficit sat at £35.4bn, and is in a worse position compared to last year, when a surplus of £22.1bn was recorded (April 2019).

The funding ratio also showed some improvement, increasing from 92.5 per cent at the end of March to 93.1 per cent at the end of April.

However, the Pension Protection Fund (PPF) highlighted that this was once again a worse position compared to April 2019, when a funding ratio of 101.4 per cent was recorded.

Furthermore, despite the number of schemes within the index in deficit also falling from 3,606 to 3,503 over the past month, the aggregate deficit for all schemes in deficit is estimated to have increased to £256.4bn (£254.1bn in March 2020).

Within the index, total scheme assets had increased by 3.9 per cent over the month to £1,745.6, while total scheme liabilities increased by 3.2 per cent to £1,874.1bn.

Commenting on the latest update, Blackrock head of UK fiduciary business, Sion Cole, attributed the boost in assets to recovering equity markets following the "sharp ‘risk-off’ moves experienced in March".

He explained: “The main catalyst for this was the sizeable and speedy actions taken by central banks and governments to support businesses and individuals through the crisis, which took shape towards the end of March.

“Investors are now beginning to look through the short-term noise, as they shrug off grim economic data releases.

"Uncertainty remains high, but is focused now not on how deep the contraction is, but how long it will last."

Cole also highlighted that despite the 'risk-on' sentiment in equity and credit markets, gilt yields had also fallen another 0.2 per cent over April, and longer dated inflation expectations remained relatively flat, leading to an increase in pension scheme liabilities of around 3-4 per cent over the month.

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