UK DB deficit rises £100bn in August as bond yields fall - PwC

The deficit of UK defined benefit pension schemes increased by £100bn in August to £340bn, according to PwC’s latest Skyval Index.

This represents a doubling of the overall deficit posted this time last year (August 2018), when the deficit stood at £170bn, and was attributed to rising liabilities and falling bond yields.

In its latest monthly update, PwC found that the assets of the UK’s 5,450 corporate DB pension funds increased by £10bn last month to £1,730bn.

However, this was offset by liabilities rising to £2,070bn, an increase of £110bn from the end of July.

The increased deficit comes after a £20bn rise in July, which followed a £20bn fall in June.

Commenting on the update, PwC chief actuary, Steven Dicker, said: “August saw a further reduction of 30 basis points in real yields, to the point where returns are now negative by 2.5 per cent compared to RPI inflation.

“The aggregate asset value has only increased slightly and is far short of matching the increase in liabilities, resulting in another increase in this month's deficit.

“The deficit is now twice the amount it was 12 months ago, taking us back to levels last seen in early 2018.

"Schemes that have significantly hedged their exposures in the meantime may be insulated from the worst of this but others will face difficult decisions around how they balance the demands of the pension schemes and their businesses.”

PwC’s Skyval Index, based on the Skyval platform used by pension funds, provides an aggregate health check of the UK’s c.5,450 corporate DB pension funds.

The current Skyval Index figures are based on the 'gilts plus' method, widely used by scheme actuaries.

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