DB pension deficits increase by 37% to £176.3bn - PPF

The combined deficit of UK defined benefit (DB) pension schemes in the PPF 7800 Index has increased by 37 per cent to £176.3bn at the end of May 2020 (£128.5bn in April).

The deficit of schemes in the index has risen month-on-month since the start of the year, apart from in April when it saw its first decrease of 2020.

The overall DB scheme deficit remains around £100bn higher than it was at the start of the year (£35.4bn), and in a worse position than this point last year, when a deficit of just £38.1bn was recorded.

The funding ratio meanwhile, has decreased from 93.1 per cent to 90.9 per cent over the past month.

This also marks a year-on-year fall, with a ratio of 97.7 per cent recorded in May 2019.

Within the index, total scheme assets increased by 1.4 per cent over the past month, and 8.6 per cent over the year, to reach £1,769.4bn.

However, total scheme liabilities saw an increase of 3.8 per cent over the past month to hit £1,945.7bn, representing a 16.7 per cent increase year-on-year.

The number of schemes in deficit has also increased to 3,621, representing 66.8 per cent of the total 5,422 DB schemes, compared to just 58.6 per cent (3,178) of DB schemes this time last year.

The average deficit of schemes in deficit rise to £290.1bn, compared to £256.4bn at the end of April.

The total surplus of schemes in surplus was also hit over the past month, falling by over £10bn to £113.8bn (£127.9bn as at April 2020).

Commenting on the latest findings, BlackRock head of UK fiduciary business, Sion Cole, noted that although equity markets had "continued their rebound throughout the month", widening inflation expectations had resulted in a "sharp decrease" in real yields and in turn, a "jump" in liability values.

He highlighted that although Covid-19 continued to "dominate global markets", May had also been marked by lower volatility in equity markets, which he stated implies that investors are cautiously monitoring the situation.

Cole continued: “Declining infection rates in many countries also gave a reason for optimism; confidence that we have hit the peak number of cases and a flattening of the new case curve serve as key catalysts for driving a market recovery, alongside a significant policy response globally and liquidity in the financial markets."

However, he warned that despite "positive market sentiment", many pension schemes are "still some way off" from where they ended 2020.

“This will no doubt have sparked conversations on whether changes need to be made to journey plans and how trustees and sponsors can ensure their schemes’ investment strategies are appropriate," he added.

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