Every month, several firms issue trackers of the aggregate defined benefit (DB) scheme funding position. See here for the May 2019 estimates on the various measures…
The latest positions
The UK's 5,450 DB schemes saw their aggregate funding level drop by 10 basis points (bps) on a best-estimate basis over the course of May, according to First Actuarial.
This was despite a £2bn increase in the surplus, rising to £387bn, with liabilities rising by £11bn and assets growing by £13bn to £1.3bn and £1.7bn respectively.
First Actuarial said expected inflation figures for the Consumer Prices Index and the Retail Prices Index were the same as for April, but schemes now needed a ‘breakeven' investment return of -1.4% per annum, compared to -1.3% the previous month.
Changes were largely due to a 10 point reduction in the weighted-average investment return assumption to 3.6% from 3.7% the month prior.
The aggregate deficit of the 5,450 DB schemes in the Pension Protection Fund (PPF) 7800 index soared over May on an s179 basis.
The lifeboat fund said the deficit rose drastically over course of last month, growing by £63.5bn to £69.9bn, while the funding level dropped 3.6 percentage points to 96%.
Total assets were £13.2bn higher than in April, sitting at £1,662.4bn while total liabilities also rose over May to £1,732.3bn, from £1,655.6bn the month prior.
The increase in liabilities was largely due to significant falls in gilt yields across the board, with all fixed interest gilt yields seeing reductions of around 20 basis points or more over the course of the month.
The FTSE All-Share Total Return and FTSE All-World Ex-UK Total Return Index also saw reductions of 3% and 2.6% respectively, impacting asset values.
BlackRock head of UK fiduciary management distribution Sion Cole said "unusually low levels of market volatility may not accurate reflect the risks in this late-cycle period" and that only schemes with a strong sponsor could take a "gung-ho approach" to investment.
The UK's 5,450 defined benefit (DB) schemes saw their aggregate deficit increase by £80bn on a gilts flat basis over the course of May, according to PwC's Skyval index.
At the end of the month, the combined asset position had remained static at £1.7trn, while liabilities had increased from £1.8trn to £1.9trn, leading to a deficit of £240bn.
The overall funding level dropped 2.8 percentage points to 87.4%.
Chief actuary Steven Dicker said: "The increase in the deficit has largely been driven by a fall in the yields on government bonds while assets have stayed flat.
"This further illustrates how continuing economic uncertainty, particularly surrounding the future direction of long-term interest rates, leads to unhelpful volatility in pension funding levels on this measure."
On an IAS 19 accounting basis, FTSE 350 schemes also saw a deterioration of £5bn over the course of May, Mercer's index says.
During the month, aggregate liabilities increased by £11bn to £856bn, while assets also increased by £6bn to £799bn, leading to a deficit of £57bn, up from £52bn.
Consequently, the combined funding level fell by 50 basis points (bps) to 93.3%.
The consultancy said while market-implied inflation had fallen by 8bps, this was completely offset by a 14bps fall in corporate bond yields, leading to the drop in funding level.
Actuary Charles Cowling said: "Recent political developments in the UK and global economic uncertainty means that scheme trustees and sponsors must prioritise risk management.
"With Brexit uncertainty reaching a new high following Theresa May's resignation, we expect volatility to persist for the foreseeable future."
Regulatory guidance “could set too high a hurdle” for superfunds, Lane Clark and Peacock (LCP) warns.
Around one in 25 pension schemes have made use of regulatory easements to deficit recovery contribution (DRC) payment schedules, according to The Pensions Regulator (TPR).
Every month, several firms issue trackers of the aggregate defined benefit (DB) scheme funding position. See here for the September 2020 estimates on the various measures…
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