DB funding - July 2019: PPF 7800 records £39bn deficit increase as gilt yields plummet
Every month, several firms issue trackers of the aggregate defined benefit (DB) scheme funding position. See here for the July 2019 estimates on the various measures…
The latest positions
PPF 7800
The aggregate defined benefit (DB) deficit of the 5,450 schemes in the Pension Protection Fund (PPF) 7800 index increased by £39bn to £90.7bn on a section 179 basis over the course of July.
The funding level also decreased by two percentage points, from 97% to 95%. Total assets amounted to £1.7trn, while total liabilities rose to £1.8trn by the end of July.
The change was largely driven by a big drop in gilt yields, the PPF's figures suggested. Over the month, yields on 10-, 15-, and 20-year fixed-interest gilts fell by 21, 19 and 17 basis points (bps) respectively.
For 5-to-15-year index-linked gilts, yields fell by 31bps over the month. This was partly offset by asset growth, with the FTSE All-Share Total Return Index recording a 2% increase and the FTSE All-World Ex-UK Total Return Index seeing 4.4% growth.
Buck head of retirement consulting Vishal Makkar said: "While the rise in deficits may have been mainly driven by the fall in gilt yields, wider global instability has also played a part in today's figures."
For example, Makkar noted the possibility of a no-deal Brexit has led to "increased uncertainty and volatility", as well as escalating US-China trade tensions.
He added: "For some this may mean re-evaluating their shorter-term investment strategy, drawing upon any contingent funding plans or even requesting further cash contributions from their company sponsor."
Mercer
The combined FTSE 350 pensions deficit rose by £3bn over the course of July on an accounting basis, according to Mercer.
As of the end of the month, liabilities amounted to £884bn, £24bn higher than in June, while assets had only grown by £21bn to £833bn. The figures result in a funding level of 94.2%, 20 basis points (bps) lower than the previous month.
The movement was blamed on a 16bps reduction in corporate bond yields, partly offset by a 2bps fall in market-implied inflation.
Partner Maria Johannessen said: "We are seeing a continuation of the see-sawing we've experienced over the last couple of months. This fluctuation is due to, among other reasons, increasing political and financial market uncertainty.
"Depending on planned activities, it may well be important for stakeholders to carefully manage risk and shield themselves from market movements, particularly in the lead up to 31 October."
Actuary Charles Cowling added currency volatility, inflation movements, and the likelihood of an interest rate cut could result in a "precarious perfect storm" for schemes in autumn.
Skyval
The UK's 5,450 defined benefit schemes had an aggregate gilts-plus deficit of £240bn, up £20bn from the end of June, according to PwC's Skyval index.
Liabilities had grown by £50bn to £2trn over the course of July, while assets also climbed, but only by £30bn to £1.7trn.
The combined funding level fell by 70 basis points to 87.8%.
Chief actuary Steven Dicker said: "July saw another drop in bond yields, and the corresponding increase in liabilities has not been offset by the rise in assets.
"This once again highlights the disconnect between assets and liabilities in the valuation of pension schemes."
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