PPF 7800 Index deficit increases as funding level falls

The PPF 7800 Index deficit increased from £8.6bn to £43.9bn over March, an increase of £35.3bn, the Pension Protection Fund (PPF) has revealed.

However the valuation of the schemes in the PPF 7800 Index has improved from this time last year, when the aggregate deficit stood at £70.5bn.

The funding level declined by 2.1 per cent during March, from 99.5 per cent to 97.4 per cent, although this is higher than in March 2018 when the funding level was 95.7 per cent.

The increased deficit over the month was driven by the 5.1 per cent rise in liabilities, from £1,603bn to £1,693bn, although this was offset slightly by a 2.9 per cent increase in scheme assets, from £1,603bn £1,649bn.

Commenting on the findings, BlackRock head of UK strategic clients, Andy Tunningley, said: “The choppy seas of recent months continued in March, causing UK pension scheme funding levels to fall on average despite growth assets delivering positive returns.

“Liabilities rose over the month as UK long dated gilt yields fell in response to continued uncertainty over Brexit.

“While equities and other growth assets also rose, this was not enough to counter the headwinds of liability valuation increases meaning the PPF 7800 Index fell by 2.1 per cent to 97.4 per cent.”

Aviva Investors investment strategist, Boris Mikhailov, added: “After being within touching distance of being 100 per cent funded only a month ago, the aggregate funding level in the PPF 7800 Index dropped 2.1 per cent to 97.4 per cent at the end of March.

“This was driven by a 25 basis points fall in long-dated gilt yields that pushed the liabilities up by much more than the assets, opening up a £43.9bn deficit.”

The aggregate deficit of all schemes in deficit at the end of March 2019 is estimated to have increased to £181.1bn from £154.3bn at the end of February 2019. At the end of March 2018, the equivalent figure was £187.6bn.

At the end of March 2019, the total surplus of schemes in surplus decreased to £137.2bn from £145.6bn at the end of February 2019. A year previously, the total surplus of all schemes in surplus stood at £117.1bn.

PPF’s report also revealed that the number of schemes in deficit increased over March, from 3,117 to 3,267, representing 59.9 per cent of all schemes surveyed.

The number of schemes in surplus decreased to 2,183 at the end of March 2019 (40.1 per cent of schemes) from 2,333 at the end of February 2019.

Tunningley concluded: “In general, pension schemes appear to have withstood most of the surprise equity market falls in the latter months of 2018 and equity markets have retraced most of those losses over the first quarter.

“This is mirrored in other asset classes such as global credit, high yield and emerging market debt.”

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