UK private sector defined benefit pension schemes have estimated £40bn deficit


Defined benefit (DB) pension schemes within the UK’s private sector had an estimated £40 billion total deficit by 31 August 2018, according to research by JLT Employee Benefits.

JLT’s monthly index shows the funding position of UK private sector DB pension schemes, based on the standard accounting measure used in organisation reports and accounts. It found that August 2018’s deficit across the private sector in the UK was a decrease of £101 billion since 31 August 2017, when there was a recorded deficit of £141 billion.

Charles Cowling (pictured), chief actuary at JLT Employee Benefits, said: “Many pension scheme trustees are currently looking at their triennial valuation results and reviewing funding and investment strategies. Trustees do tend to be more cautious when looking at their pension scheme valuations. However, many pension schemes are seeing valuation results which are an improvement on their funding position at the last valuation three years ago. There is the possibility that 2018 may see a welcome and much reduced demand for additional pension funding on employers.

“It should therefore be an ideal opportunity for pension schemes to lock in their position and switch out of risky assets into investments which more closely match their liabilities. Having spent 10 years clawing their way back into surplus, it would be a sad day for pension schemes if all that progress was lost in another crisis of confidence in markets.”

Asset values across all UK private sector DB pension schemes were estimated at £1,579 billion as of 31 August 2018, compared to £1,568 billion a year earlier. Liabilities were recorded at £1,619 billion for all UK private sector DB pension schemes, which is a decrease from £1,709 billion in August 2017.

For the UK’s top 350 organisations, the funding position of DB pension schemes featured a £7 billion deficit, £764 billion in assets and £771 billion in liabilities, by 31 August 2018. This is a notable decrease since August 2017, when the FTSE 350 had a reported deficit for its DB pension schemes of £49 billion, asset values of £775 billion and liabilities of £824 billion.

Within the FTSE 100, on 31 August 2018, the total DB pension scheme funding position included a £3 billion deficit, £675 billion in assets and £678 billion in liabilities. This compares to a £39 billion pension deficit in August 2017, with asset values of £687 billion and liabilities of £726 billion.

Cowling added: “Finance directors and trustees alike should be actively assessing the many favourable opportunities now available to lock in their liabilities, possibly through the purchase of matching cash-flow driven investments (CDI), of which there are a growing number of options now available.

“Another way for many pension schemes to lock in their finances and reduce risk is through the payment of individual transfer values to members. For some pension scheme members, such transfers can be attractive given the introduction of pension freedoms over the last few years. At the same time, they can be very beneficial to employers and trustees alike, looking to shrink their pension liabilities and reduce their reliance on the employer’s balance sheet to protect members’ benefits.”