The combined deficit of UK defined benefit (DB) pension schemes has continued to increase amid Covid-19 uncertainty, rising to £135.9bn at the end of March 2020.

The deficit rose from £124.6bn at the end of February 2020, representing the third consecutive month of increases in the Pension Protection Fund (PPF) 7800 Index, and a more than £100bn surge since the start of the year, when the deficit sat at £35.4bn.

The PPF highlighted that the position has also worsened when compared to this point last year, when a deficit of £12.7bn was recorded.

Within the index, total scheme assets had fallen by 2.3 per cent over the month to £1680.5bn, while liabilities also showed a decrease of 1.6 per cent over the month to £1,816.4bn.

The funding ratio had also continued to drop, falling from 93.2 per cent at the end of February 2020 to 92.5 per cent.

Like the overall deficit, the index funding ratio has also fallen comparatively to this point last year, with the index recording a 99.2 per cent ratio in March 2019.

Furthermore, the number of schemes included in the index in deficit has also shown a further increase, rising from 3,492 at the end of February to 3,606.

This subsequently also saw an increase in the deficit of the schemes in deficit, increasing by almost £10bn to £254.1bn at the end of March 2020 (£244.8bn in February 2020).

Commenting on the update, AJ Bell senior analyst, Tom Selby, stated: “As the coronavirus shutdown has forced economies around the world to hibernate and central banks to launch fresh stimulus packages, DB schemes were always likely to be caught in the firing line.

“Today’s figures demonstrate yet another grim reality of the current crisis, with the total deficit of schemes in the UK rising by over £10bn in March.

“While such figures may understandably give the members of DB schemes the jitters, it’s worth remembering the most important thing in most cases is not the value of any deficit today but the ability of an employer to survive long enough to pay your pension both now and in the future.

“Furthermore, DB schemes benefit from the safety net of the PPF, so even if the scheme sponsor faces liquidation you should still get a significant chunk of the pension you were promised.”

However, Buck head of retirement consulting, Vishal Makkar, warned: “The PPF could end up taking on a large numbers of sponsor failures, an outcome which could have devastating effects for both retirees and current employees all over the country. This simply can’t be allowed to happen.”

Echoing this, Selby added that whilst these increases could represent a problem from a company perspective, by threatening to divert funds from elsewhere, The Pensions Regulator (TPR) has already stepped in with easements to give companies “breathing room” when paying off deficits.

He explained: “Trustees of DB schemes were told they should be ‘open’ to requests to reduce or suspend deficit recovery contributions during the current turmoil, while recovery plan submissions and the provision of cash equivalent transfer values (CETVs) can be delayed by up to three months. This flexibility is undoubtedly better than nothing."

Makkar agreed, urging trustees to follow the latest regulatory and governmental guidance to ensure that member benefits are protected.

”Trustees should be ensuring that the pension scheme has adequate liquidity to pay existing members’ benefits as a priority,” he explained, “but at the same time keeping a close watch on three other key themes.

“These are: funding (current levels and future contribution adequacy), investments (and the associated risks), and the sponsor covenant (which will be impacted in both the shorter and longer term by Covid-19).”

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