UK DB pension deficit remains at £260bn in October

The combined deficit of UK defined benefit (DB) pension schemes remained at £260bn in October 2020, according to the latest PwC Pension Funding Index.

The deficit also stood at £260bn in September, after increasing by £30bn from August, not far off the March lockdown peak of £290bn.

In October, asset values fell by £20bn to £1,760bn, although this was offset by liabilities also decreasing by £20bn, to £2,020bn.

Equities fell by around 3 per cent over the month, while government bond rose by 5 basis points.

PwC noted that UK DB schemes had proved “stubborn” and “relatively stable” over the year, despite market volatility and global uncertainty.

However, PwC head of global pensions, Raj Mody, said the stability in pension deficits was a “double-edged sword”.

“On the one hand, it’s good that pension scheme strategies are generally able to withstand market volatility,” he continued. “On the other hand, sponsors and trustees will want to eliminate deficits ultimately and need market outperformance to help with that.

“It’s not clear with upcoming headwinds when markets will deliver what pension funds need.”

PwC urged trustees and sponsors not to focus overly on their single deficit measure and put greater focus on the scheme’s ability to pay its cashflows as they fall due over time by getting the specific asset profile appropriate for the scheme characteristics, regardless of the apparent deficit figure.

Mody added: “Imagine you went to your doctor for a health check. Your doctor would do a variety of different tests and use a range of indicators. It’s the same for a pension fund assessment.

“Just considering the pension scheme deficit would be like your doctor just checking your blood pressure. One test in isolation is not going to give you the full picture. There are many dimensions to pension fund financial management which all need careful management.”

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