Every month, several firms issue trackers of the aggregate defined benefit (DB) scheme funding position. See here for the September 2019 estimates on the various measures…
The latest positions
The aggregate defined benefit scheme funding level improved by 70 basis points (bps) over the course of September due to strong equity returns, according to the Pension Protection Fund (PPF).
The lifeboat fund's 7800 index recorded the combined deficit fell by £14bn to £148.9bn over the month, leading to a funding level of 92.2%, up from 91.5% in August.
Total assets amounted to £1.8trn, while liabilities were recorded at £1.9trn.
Gilt yields remained stagnant over the month, with 10-year and 20-year fixed interest yields not changing, while there was 2bps reduction for the 20-year equivalent. 5-to-15-year index-linked yields rose by 4ps.
However, assets were boosted by a 3% return on the FTSE All-Share Total Return Index and a 90bps return on the FTSE All-World Ex-UK Total Return Index.
Buck head of retirement consulting Vishal Makkar said schemes were continuing to feel the pressure of 20-year low gilt yields.
He added: "A combination of political uncertainty in the UK, ongoing negotiations with the European Union, and volatility in the global oil markets have added to continued instability in the wider market."
And, with expected changes to inflation measurement, he said schemes need to consider their contingency plans.
"For example, trustees should consider their shorter-term investment strategy to help combat market volatility or even request further cash contributions from their company sponsor," he continued. "However, in all cases, adopting the right approach will depend on the unique funding position of each scheme."
The aggregate accounting deficit of FTSE 350 defined benefit (DB) schemes reduced by £17bn over the course of September, says Mercer.
The consultancy found the month-end deficit was £50bn, with liabilities decreasing by £8bn to £906bn and asset values increasing by £9bn to £856bn. This resulted in a funding level of 94.5%, up 1.8 percentage points from August.
Mercer found volatility over the month was vast, with a £25bn range in deficit levels between the best- and worst-funded days. Daily deficits varied from £49bn to £74bn, while there was also a £45bn range in liability levels in the same period.
Partner and corporate consulting leader Maria Johannessen said the uncertainty shows that there is "a real benefit to actively monitoring the funding position and spotting opportunities to manage risks when circumstances are supportive of doing so".
Mercer also blamed the economic and political uncertainty on the volatile markets.
Actuary Charles Cowling added: "The unprecedented political turmoil in the UK shows no sign of easing. Uncertainty over Brexit and speculation over a possible general election are causing nervousness and volatility in markets."
On a gilts-plus basis, scheme deficits fell by £50bn over the course of September, according to PwC's Skyval Index, thanks to a "small rally" in gilt yields.
At the end of last month, the estimated shortfall for all DB schemes amounted to £290bn, with assets totalling £1.7trn, compared to liabilities at £2trn.
The funding level rose 2.1 percentage points from 83.6% to 85.7%, after, at the end of August, hitting the lowest level published by the index since November 2017.
PwC chief actuary Steven Dicker said: "There has been an improvement in the assessed deficit over the month due to a small rally in gilt yields combined with a slight fall in inflation expectations. However, gilt yields remain at historic lows and poorly hedged schemes will continue to feel the brunt of this volatility."
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Companies could be overstating their pension liabilities by up to £60bn due to their life expectancy assumptions, according to XPS Pensions Group.
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.
Regulators must act now to impose some "proper regulation" to stop another defined benefit (DB) transfer advice disaster, saysTim Sargisson.
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.