PPF 7800 deficit falls by £8.8bn in ‘best January for stocks in 30 years’

The aggregate deficit of DB schemes in the PPF 7800 Index fell by £8.8bn in ‘the best January for stocks in 30 years’, new figures from the Pension Protection Fund (PPF) have revealed.

At the end of January 2019, the deficit stood at £23.1bn, compared to a deficit of £31.9bn at the end of December 2018. This also represents deficit reduction of £27.9bn in comparison to January last year.

Total scheme assets increased by £31.7bn (2 per cent) from the end of 2018 to £1,603bn, amid the bumper January for stocks.

The rise in asset value was offset slightly by an increase in liabilities, which climbed by £22.9bn (1.43 per cent) during January to £1,626bn.

Furthermore, the funding level of the schemes in the PPF 7800 increased by 0.6 per cent over the month, up to 98.6 per cent.

Commenting on the figures, BlackRock head of UK strategic clients, Andy Tunningley said: “UK pension schemes have beaten the January blues with funding levels ending the month at 98.6 per cent, up 0.6 per cent from the end of 2018.

“Asset values increased as a result of the best January for stocks in 30 years, boosted by signs that the Federal Reserve were going to be more patient with regards to rate rises and a softening in rhetoric on China from the Trump administration.

“Despite bond yields falling once again (10-year gilts ended the month at their lowest month-end level since November 2017) the overall direction was positive for scheme funding.”

The PPF found that, of the 5,450 DB schemes in the Index, 3,190 were in deficit and 2,260 were in surplus. The number of schemes in deficit fell from the end of December, when 3,271 were recorded to be in deficit.

Tunningley continued: “Those schemes which had structures in place to de-risk early in the fourth quarter and then add that risk back in at the start of 2019 will have protected themselves from the downturn and participated in the upside.

“If trustees were not able to react quickly enough, should they think about alternative governance arrangements? Would a more delegated, discretionary approach such as a diversified growth fund, trigger strategies or fiduciary management improve their scheme’s chances of reaching the end-goal?

“This is a conversation schemes should be having with their partners as well as considering an outside opinion to ensure they are getting a wide range of perspectives.”

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