PPF 7800 deficit jumps up by £72bn in July

The combined deficit of schemes in the PPF 7800 index has increased by £72.2bn during August to £162.9bn, according to the Pension Protection Fund (PPF).

In its latest figures, the PPF revealed that the deficit had increased from £90.7bn at the end of July and was significantly higher than this time last year, when a deficit of £29.5bn was recorded.

The worsening deficit was attributed to falling gilt yields and increasing equity volatility.

In August, the funding level of schemes in the PPF 7800 Index fell by 3.5 per cent to 91.5 per cent, while the number of schemes in deficit increased from 3,396 to 3,652, representing 67 per cent of schemes.

The aggregate deficit of all schemes in deficit at the end of August 2019 is estimated to have increased to £273.5bn from £218.8bn at the end of July 2019.

The PFF revealed that total scheme assets amounted to £1,756bn at the end of August, up by 1.5 per cent over the month from July’s total of £1,730bn.

Total scheme liabilities also rose over the month, from £1,821bn to £1,919bn, representing an increase of 5.38 per cent.

Commenting on the update, BlackRock head of UK fiduciary business, Sion Cole, said: “Another month of tumbling gilt yields and increasing equity volatility saw UK pension scheme funding levels fall even further in August.

“The main driver of the falls was a sharp decline in gilt yields, which fell 30bps across the curve. While schemes with liability hedging and credit strategies in place will have been protected, equity volatility increased dramatically so assets fell over the month.

“This was largely driven by geopolitics with Trump suggesting new tariffs on Chinese imports. In the UK Brexit volatility continued with the prospect of a no-deal Brexit and/or a general election becoming more likely. As a result, UK and global equity markets were down 2-3 per cent over the month.

“Whether a scheme is in surplus or deficit will largely have decided how schemes have fared in August.

“Generally speaking, better funded schemes have more hedging and are taking less investment risk so will have coped better with the market turbulence in August. Conversely, their underfunded counterparts who need to chase returns will have been hit hardest.

"With little resolution in sight to the geopolitical challenges which have impacted markets and therefore pension schemes so far in 2019, we expect more and more schemes to consider fiduciary management. This is because dynamic, flexible investment strategies underpinned by high levels of liability hedging seem most appropriate in the current climate.

“Whilst the PPF 7800 index has fallen since December, a fiduciary approach could have resulted in a funding level gain over the same period.”

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