DB funding - June 2019: 'Best estimate' surplus grows £14bn
Every month, several firms issue trackers of the aggregate defined benefit (DB) scheme funding position. See here for the June 2019 estimates on the various measures…
The latest positions
First Actuarial
Defined benefit (DB) schemes saw their aggregate surplus rise by £14bn over the course of June on a best-estimate basis, according to First Actuarial.
During the month, assets increased by £27bn, while liabilities also increased by £13bn, leading to a surplus of £401bn, the consultancy said.
This resulted in a 70 basis point (bp) funding level improvement to 131.1%, and a 10bp reduction in the investment return needed to breakeven, which was recorded at -1.5% per annum - or 2.1% on a nominal basis.
The figures were calculated based on an assumption of 3.6% and 2.6% for expected future inflation under the Retail Prices Index and Consumer Prices Index respectively, as well as a 3.5% weighted-average investment return, which was 10bp lower than in May.
PPF 7800
The aggregate section 179 deficit of the UK's 5,450 schemes fell by £18.2bn over the course of June, according to the Pension Protection Fund's (PPF) 7800 Index.
At the end of the month, assets totalled £1.69trn while liabilities amounted to £1.74trn, leading to a funding ratio of 97%, up from 96% the month prior.
The number of schemes in deficit fell by 80 to 3,302, with a corresponding increase for those in surplus, which rose to 2,148.
Yields on 10- and 15-year fixed interest gilts fell by four and three basis points (bps) respectively, and remained stagnant for the 20-year version, while the 5-15-year index-linked gilt saw yields fall by 3bps.
However, this was offset by equity returns, with the FTSE All-Share Total Return Index and the FTSE All-World Ex-UK Total Return Index growing by 3.7% and 5.6% respectively.
BlackRock head of UK fiduciary management distribution Sion Cole said UK schemes had "weathered most of the storms" in a "washout" month for the UK.
"Amid wider global growth uncertainty, risk assets were supported by comments from the US Federal Reserve and the European Central Bank, indicating a willingness to cut rates and reintroduce monetary stimulus if necessary," he said.
However, as this had a negative impact on government bonds, schemes must consider implementing "dynamic, flexible investment strategies underpinned by high levels of liability hedging", he said.
Mercer
Defined benefit (DB) schemes sponsored by FTSE 350 companies saw a 110 basis point (bp) improvement in their funding level over the course of June, according to Mercer.
On an accounting basis, these schemes were 94.4% funded on an aggregate basis at the end of the month, with the deficit having dropped by £9bn to £48bn.
Total assets were valued at £812bn, £13bn higher than in May, while liabilities grew by £4bn to £860bn. The latter increased due to a 7bp decline in corporate bond yields, but this was then offset by a 5bp fall in market-implied inflation.
Partner Maria Johannessen said the figures represented a "positive turn" after three months where movements in the index had been "negligible".
Actuary Charles Cowling added: "In spite of the welcome decline in the deficit this month, significant macroeconomic and political headwinds remain."
He pointed to the appointment of a new prime minister by the end of the month, the continuing Brexit negotiations, and rising global trade tensions.
"We expect market volatility to be a consistent feature of the months ahead."
Skyval
The UK's 5,450 defined benefit (DB) schemes saw their aggregate surplus drop £20bn over the course of May, according to PwC's Skyval index.
Schemes had a combined deficit of £220bn at the end of the smonth, with assets and liabilities amounting to £1.7trn and £1.9trn respectively.
The funding level rose by 1.1 percentage points to 88.5%, the consultancy said.
PwC chief actuary Steven Dicker said: "The small improvement in the deficit has been mostly driven by positive performance in equity markets over the month.
"Overall, however, the yoyo trend of recent months is largely a reflection of funds treading water as geopolitical and economic issues continue to rumble on."
More on Defined Benefit
Trustees have 'false confidence' in their scheme strategies
Nearly every trustee is confident of the next stage in their scheme’s strategy, despite almost an equal number being forced to consider replacing plans within the prior 12 months, according to research by Barnett Waddingham.
Companies overstate liabilities by £60bn amid Covid deaths
Companies could be overstating their pension liabilities by up to £60bn due to their life expectancy assumptions, according to XPS Pensions Group.
Updated: Landmark GMP ruling 'significant challenge' for schemes
Defined benefit (DB) schemes that provide GMPs must revisit and, where necessary, top-up historic cash equivalent transfer values (CETVs) that have been calculated on an unequal basis, a landmark court judgment said last week.
FCA must stop DB transfer history repeating
Regulators must act now to impose some "proper regulation" to stop another defined benefit (DB) transfer advice disaster, saysTim Sargisson.
DB funds as an economic lever could derail schemes from responsibilities
Opportunities for defined benefit (DB) schemes to pursue investment approaches that help repair the UK’s economy cannot stand in the way of improving member outcomes, Aegon says.
