£60bn spike in defined benefit pension deficit

A survey of 5,600 of the UK’s corporate defined benefit pension funds shows that the deficit rose by £60bn to £290bn over the course of December 2018, reversing gains made in 2018 and indicating growing uncertainty over Brexit

The figures come from PwC’s Skyval Index, an aggregate survey of the health of UK corporate pension funds. The most recent figures from the index, based on the ‘gilts plus’ method used by scheme actuaries, show that the current assets of nearly 6,000 funds amount to £1.56 trillion, with a liability target of £1.85 trillion.

2018 saw pension deficits reduced to a low of £150bn at the end of September, but rising market uncertainty, falling asset values and a decrease in gilt yields reversed the months-long trend. In October, the deficit in the UK pension schemes shot up by more than 50% to £230bn, and December was the most volatile month for pension values since September 2017.

Steven Dicker, PwC’s chief actuary, said: ‘The end of November saw a temporary peak in bond yields, which has since reversed. This reversal, combined with a fall in assets, has increased the deficit over December.

‘Additionally, most schemes’ pension liabilities will increase following the High Court judgment in late October 2018 that means UK pension schemes are now required to equalise guaranteed minimum pensions (GMP) between men and women.

‘While the impact will vary for different schemes, the ruling could increase liabilities by 0.5% or more. The increase in the index over the month allows for an estimate of the GMP equalisation liability.’

Report by James Bunney

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