Pension scheme deficits projected to reach £362 billion

The deficit of all pension schemes eligible for the Pension Protection Fund (PPF) will reach £362 billion by end of December, according to projections by Xafinity.

Based on market conditions at the end of May, Xafinity's Corporate Pension Scheme Model, also revealed the predicted deficit is £90 billion less than estimated using the assumptions at the end of April, which was £452 billion.

The model shows the assets have reduced by around £35 billion due to the decrease in both yields and the FTSE 100 since the end of April.

However, the market’s expectation of inflation as shown by the difference between the yields on conventional and index-linked gilts has reduced significantly because risk adverse investors are moving into conventional gilts rather than relatively less attractive index-linked gilts.

This leads to a reduction in liabilities of some £125 billion resulting in an overall reduction in the projected deficit.

Robert Hunt, corporate solutions director at Xafinity, said: “This impact however may be short term and the continued fall in markets may reverse the decrease in deficit."

The model's findings are updated and published on a monthly basis to give all those connected with a pension scheme an indication of how changing market conditions can impact the financial status of pension schemes.