UK DB pension deficit climbs by £30bn in May - PwC

The deficit of UK defined benefit (DB) pension schemes increased by £30bn to £240bn over May, according to figures from PwC’s Skyval Index.

The index figures showed DB liabilities rose by £60bn in May, outweighing a £30bn increase in DB assets.

The news is in contrast to the change registered from March to April, where the deficit was shown to have dropped by £80bn to £210bn after the value of assets increased by £110bn.

Other than the fall in April, the DB pension deficit has been on the rise since December 2019, when it stood at £170bn.

The news comes just a day after Mercer said that the accounting deficit of DB pension schemes for FTSE 350 companies rose from £52bn at the end of April 2020 to £72bn on 29 May following falls in corporate bond yields.

PwC chief actuary, Steven Dicker, said: “Over the month, the funding position deteriorated slightly as a result of a drop in real government bond yields which was not offset by the slight improvements in equity assets.

“Real government bond yields have been negative for some time - relative to inflation - and there is growing speculation about negative nominal rates, with a three-year UK government bond recently selling with a negative nominal yield. Pension funding is driven by longer term rates but this all adds to concerns about sustained very low interest rates.

“A clear picture of the post Covid-19 economy, and how this will impact asset markets, interest rates and inflation, is yet to emerge. As we slowly transition back towards normality, employers and trustees will need to work together to focus on their long-term planning and risk management, and how this aligns with the regulator’s recently published annual funding statement.”

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