Defined benefit pension funding deficit falls to £420bn

Pension Kilner Jar

The funding deficit for defined benefit (DB) pension schemes in the UK was £420 billion at the end of July 2017, according to research by PricewaterhouseCoopers (PWC).

Its Skyval index, which is based on data relating to 5,800 DB pension funds and collected through the Skyval pensions platform used by trustees, sponsors and advisors, found that the funding deficit for UK DB pension schemes fell by £40 billion between June 2017 and July 2017.

Between June 2017 and July 2017, pension assets remained at £1,550 billion according to the current funding measure, which is used by pension fund trustees to determine organisations’ cash contributions. The current funding measure liability target at the end of July 2017 was £1,970 billion, compared to £2,010 billion at the end of June 2017.

Steven Dicker, chief actuary at PWC, said: “The funding liability at the end of July stands a little lower than the end of June so, with relatively static asset values, this has led to the third consecutive monthly decrease in deficit.

“As a result, the proportion of liabilities covered by assets of UK pension schemes has reached its highest point since the autumn of 2014, at 78.7%. However, the monetary value of the gap between assets and liabilities, at £420 billion, remains higher than what it was three years ago.

“Part of this is due to schemes not being hedged against the fall in gilt yields, to what have been historically low levels. However, while this hedging would have reduced the disclosed deficit on the gilt plus funding approach, it is important to realise this wouldn’t necessarily improve the actual long-term outturn for schemes.”