PPF 7800 Index shows £25.6bn increase in DB pension deficit

The UK’s defined benefit (DB) pension deficit, on a section 179 basis, increased by £25.6bn during September, according to the Pension Protection Fund (PPF) 7800 Index.

During the month, the deficit of the 5,422 schemes assessed rose from £140.5bn to £166.1bn and the overall funding level fell from 92.6 per cent to 91.4 per cent.

Although assets increased from £1,754.8bn to £1,771.4bn over September, this was outweighed by liabilities rising from £1,895.2bn to £1,937.5bn

“The movements were caused by a decrease in bond yields driving up the value of liabilities which were to a certain extent offset by an increase in asset values, due to higher bond prices,” commented PPF chief financial officer and chief actuary, Lisa McCrory.

“While we expect to see increased claims in the future due to Covid-19, we remain confident we are on a strong footing to continue to protect the UK DB pensions universe.”

According to the index, there were 3,588 schemes in deficit and 1,834 schemes in surplus, with the deficit of the schemes in deficit at the end of September totalling £279.6bn, up from £258.6bn at the end of August.

Commenting on the findings, AJ Bell senior analyst, Tom Selby, said: “Low central bank interest rates place downward pressure on government gilt yields, which is bad news for DB pension schemes as this pushes up the value of liabilities.

“While the value of investments held on behalf of DB members has recovered since the market lows of March and April, persistently low gilt yields are working in the opposite direction.

“And with tougher lockdown measures coming into force this week and the Bank of England warning negative interest rates may be needed to keep the economy afloat, it is possible DB deficits will rise still further as the UK claws its way through the remainder of 2020.”

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