PPF 7800 deficit falls by £45bn in October

The combined deficit of the schemes in the PPF 7800 Index fell by £45.4bn over the course of October to £103.6bn, compared to £149bn at the end of September.

This reduction has also seen an increase in funding ratio, from 92.2 per cent at the end of September 2019 to 94.4 per cent at the end of October.

Despite this, the ratio remains slightly lower than this time last year (95.9 per cent).

As a result, both total assets and liabilities dropped over the month, with assets coming in at £1,739.7bn and total liabilities at £1,843.3bn. Though scheme assets and liabilities have seen an increase of 9.5 per cent and 11.3 per cent respectively over the year.

Commenting on the fall, Investment Strategist at Aviva Investors, Niren Patel said: “October was another turbulent month for the UK economy and pension schemes.

"Whilst Brexit uncertainty and the US-China trade war depressed global equity markets, down around 2 per cent over the month, UK government bonds yields – both nominal and real – increased across the curve by around 15-30bps."

Whilst the last two months have seen a continued decrease in the combined deficit, schemes remain in a worse position than they were this time last year, when the index reported a combined deficit of £67.2bn.

PPF reported that there were 3,459 schemes in deficit, with the combined deficit of these also falling over the month to £230.5bn, down from £265.3bn at the end of September.

Patel added: “Although the picture is positive for funding levels and deficits, market uncertainty persists, with a new Brexit deadline of 31 January 2020, a general election in early December, as well as the government’s response to the recent House of Lords review of the RPI index.

"The latter could have a significant impact on investors with assets linked to RPI such as index-linked gilts, inflation-linked corporate bonds, and real assets.

“It is also likely to have a detrimental impact on pension schemes that have a significant proportion of their liabilities linked to CPI – and especially schemes that have hedged these liabilities with RPI-linked assets.

"Schemes affected need to consider how to respond to the upcoming RPI consultation in January, including the potential to seek compensation if the outcome has a negative financial impact on them.

“Given improved funding levels and the increasing number of pension funds reaching maturity, more consideration should be given to de-risking journeys and whether to adopt cashflow driven investing (CDI) strategies.”

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