Defined benefit pension funding deficit rises to £460bn

The funding deficit for defined benefit (DB) pension schemes in the UK was £460 billion at the end of August 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 increased by £40 billion between July 2017 and August 2017.

At the end of August 2017, pension assets were £1,570 billion according to the current funding measure, which is used by pension fund trustees to determine organisations’ cash contributions. This is an increase from the £1,550 billion recorded in June 2017 and July 2017.

The current funding measure liability target at the end of August 2017 was £2,030 billion, compared to £1,970 billion at the end of July 2017.

Steven Dicker, chief actuary at PWC, said: “August saw a small decrease in long-term interest rates, interest rates relative to inflation, as measured by government bond yields, which has led to a £60 billion increase in liabilities. In contrast, assets have only grown very modestly by £20 billion. Consequently, deficit has increased by £40 billion.

“The deficit calculation is based on a ‘gilts+’ approach and is sensitive to even modest market movements. Compounding with the uncertain economic and political climate, the deficits calculated on this basis are likely to remain volatile.”