The combined funding level decreased by just over four percentage points by the end of last month to 93.6%, according to the Pension Protection Fund's (PPF) latest update.
At the end of September the index, which tracks 5,588 defined benefit (DB) schemes, reached the highest funding level (97.7%) since June 2011, when it was at 98.2%. However, at the end of October, it was at the lowest level since March this year.
The PPF said the drop was "purely down to changes in gilt yields". Conventional 10- and 15-year gilt yields fell by 13 basis points (bps) and nine bps, respectively, while 20-year gilt yields fell by seven bps, and index-linked five- to 15-year yields fell by 19 bps.
According to the PPF, its calculations were carried out before taking guaranteed minimum pensions (GMPs) into consideration following the Lloyds judgment last month, in which the High Court ruled GMPs must be equalised between men and women.
However, other monthly indexes noted GMPs as a driver for the fall in funding levels. JLT's monthly index showed a funding level drop of nearly two percentage points to 96% by the end of October from the previous month, under the IAS 19 accounting measure.
JLT Employee Benefits chief actuary Charles Cowling said the Lloyds case "may incur huge additional costs and resources for schemes". He added that as schemes will have to recalculate benefits for members, "the cost of doing the calculations alone could be much greater than the cost of the additional benefits that may be awarded".
Meanwhile, Mercer's monthly update recorded a five percentage point drop from fully funded for FTSE 350 schemes, to 95%, under the IAS 19 accounting measure. Again, the firm noted increased costs to schemes as a driving factor as a result of the Lloyds judgment.
The PPF's index showed that the combined s179 deficit increased over October to £107.7bn at the end of the month, from £38.7bn at the end of September. The position has worsened from a year ago, when a deficit of £87.7bn was recorded at the end of October 2017.
Meanwhile, over last month, aggregate liabilities were recorded at £1.69trn - a 0.2% increase from last month, while assets were £1.58trn - a 0.4% decrease from the position at the end of September. Overall, there were 3,755 schemes in deficit, and 1,833 schemes in surplus.
Commenting on the PPF's monthly update, Blackrock head of UK strategic clients Andy Tunningley said that 2018 seems destined to repeat itself, with a period of reasonable equity returns and improving funding levels being eroded by market volatility.
"Throughout October, those schemes with well-balanced and managed strategies fared better and their funding levels may even have increased if they had sufficient hedging and dynamic growth portfolios.
"Those schemes which had taken advantage of funding level improvements earlier in the year by de-risking will be sitting happier than those which hadn't. Moreover, recent volatility has highlighted that now is the time to look beyond benchmarking alone to provide protection for tail risks."
He added that instead, schemes should be looking for more diversified, dynamic and outcome oriented approaches to minimise the impact of these risks.
"Assets such as a diversified growth fund or multi-asset credit funds which aim to minimise market downturns while still capturing upside may be beneficial in this context. Assets of this nature will become increasingly important as schemes mature and pay out more as the path of returns becomes more crucial."
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