PPF index: DB deficit falls 27% to £62.8bn
Private sector defined benefit (DB) schemes were 96.3% funded on a Pension Protection Fund (PPF) compensation basis at the end of July, according to the lifeboat fund's monthly index.
On aggregate, the 5,588 schemes in the PPF 7800 Index had a s179 deficit of £62.8bn at the end of the month, 27% down from £85.6bn at the end of June.
Total assets amounted to £1.62trn while liabilities were at £1.68trn, while the funding level improved from 94.9% to 96.3%, nearing the January four-year high of 96.9%.
An additional 96 schemes were in surplus at the end of the month, reaching a total of 2,051 schemes, while 3,537 schemes had a deficit.
Higher gilt yields were to thank for the lower deficit, with conventional 10-, 15- and 20-year gilt yields rising by five basis points (bps), 4bps and 3bps respectively. Index-linked 5-to-15-year gilt yields also rose by 2bps over the month.
Over the year to July 2018, the FTSE All-Share Index grew by 5.1%, while the FTSE All-World Index increased by 9.4%, both aiding the increase in scheme assets.
BlackRock head of UK strategic clients Andy Tunningley said schemes should prepare for "what is shaping up to be a more turbulent end to 2018".
"Global stock markets were positive for the month, led by strong corporate earnings and reduced trade tensions, despite some sanctions coming into force, helping scheme funding levels to bounce higher," he said.
"With equity volatility expected to increase, gilt yields remaining stubbornly low, and increasing Brexit and trade uncertainties causing concerns, we may see these gains eroded over the remainder of the year."
And, while the Bank of England did increase its base rate from 0.5% to 0.75% earlier this month, "the rising of short-term rates in the UK has little bearing on the long-end of the yield curve", thereby not impacting scheme liabilities significantly, he added.
"With bond yields unlikely to bail schemes out any time soon, and equities not expected to return the same as in previous years, we recommend schemes thinking outside traditional assets in order to meet their funding needs."
The figures come as the PPF launched a consultation on changing the assumptions used to calculate liabilities. Under its proposed adapted model, DB schemes would have a surplus on aggregate.
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