UK DB pension deficit rises by £2.1bn amid Covid-19 second wave

The combined deficit of UK defined benefit (DB) pension schemes in the Pension Protection Fund (PPF) 7800 Index rose to £168.2bn at the end of October, marking a £2.1bn increase during the month.

The funding level also decreased from 91.4 per cent at the end of September to 91.2 per cent.

Total scheme assets declined by 1 per cent over the month to £1753.4bn, marking a 2.9 per cent fall since the start of the year.

This was partially offset by a 0.8 per cent decrease in total scheme liabilities over the month to £1,921.6bn, although this represents a 8 per cent increase over the year so far.

PPF chief finance officer and chief actuary, Lisa McCrory, explained: “The drop was caused by a decrease in asset values due to a fall in bond and equity prices, the movement in bond yields also caused liability values to fall.

“We remain mindful that global market movements continue to be volatile in the second wave of Covid-19.”

The number of schemes in deficit also rose in October, with 3,617 schemes in the index now in deficit, representing 66.7 per cent of the 5,422 DB schemes.

However, the total deficit for schemes in deficit has dropped slightly from £279.6bn as of September 2020, to £279.5bn at the end of October.

Commenting on the findings, Buck head of retirement consulting, Vishal Makkar, warned that the outlook for pension schemes "remains shaky".

He stated: “The aggregate deficit increased again during October, as markets continued to be plagued by the global pandemic and the reintroduction of lockdowns across Europe, as well as political turmoil in the United States.

"In the UK, a return to lockdown for many and the continuation of rock bottom interest rates mean that the outlook for pension schemes remains shaky.

“For now, a surge in unemployment and company collapses has been held at bay thanks to various government initiatives."

He added: "The Treasury has, however, clearly signalled that these will not be available forever and the threat of company collapses in particular, should be of major concern to trustees of poorly funded schemes.

"The PPF has never been prepared for mass scheme failures and hopefully such a disastrous occurrence will never arise.”

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