The combined deficit of UK defined benefit (DB) pension schemes in the PPF 7800 Index has risen to £124.6bn, as industry experts warn of market volatility amid COVID-19 uncertainty.

This latest rise in the deficit follows a sevenfold increase up to £74.7bn at the end of January 2020.

The PPF update echoes analysis from Hymans Robertson, which earlier this month warned that DB scheme deficits had jumped by around £100bn in the last week of February due to the impact of the coronavirus outbreak.

The index showed a further 2.7 per cent fall in the funding ratio of the PPF 7800, dropping to 93.2 per cent at the end of February 2020.

Furthermore, scheme positioning has continued to worsen compared to last year, with a deficit of just £8.6bn recorded in February 2019.

The update also showed a slight increase in the number of schemes included in the index in deficit, rising from 3,257 to 3,492.

This subsequently saw the combined deficit increase up to £244.8bn, compared to £209.9bn at end of January 2020.

Total scheme assets fell by 0.2 per cent to £1720.9bn (£1,733.9bn in January), though this represents a 7.4 per cent increase over the year.

Meanwhile, total liabilities saw a 2 per cent jump over the last month, increasing from £1,808.6bn to £1,845.5bn, and a 14.5 per cent jump over the past year.

Commenting on the index, Buck head of retirement consulting, Vishal Makkar, said: “It appears that global markets are not immune to the coronavirus outbreak.

“The situation in China – the world’s second largest economy and a key hub for global supply chains – has cast a shadow over the start of the year and has led to concerns about the potential impact on the global economy.

"Combined with this uncertainty, a sharp fall in gilt yields which followed the post-election bump, has seen liabilities climb in January.

"With increasing pressure being placed on the UK’s remaining DB schemes, trustees must keep on top of market fluctuations and the impact these may have on their schemes to ensure they are prepared for the uncertain road ahead.”

Industry experts have recently warned that schemes should avoid taking speculative risks during COVID-19 uncertainty, highlighting the impact of the market volatility on scheme funding levels.

Makkar added: “It is important that trustees update and monitor their integrated risk management strategy to ensure it remains fit for purpose in these challenging markets, perhaps making short-term tactical investment switches.

"As always, opportunities to reduce liabilities through appropriate measures such as enhanced transfer value (ETV) or flexible retirement options (FRO) exercises, should be explored with scheme sponsors.”

Share Story: