Every month, several firms issue trackers of the aggregate defined benefit (DB) scheme funding position. See here for the October 2019 estimates on the various measures…
The latest positions
The combined deficit of the 5,450 schemes in the Pension Protection Fund (PPF) 7800 index fell by £45.4bn to £103.6bn during October, resulting in a funding level of 94.4%, up from 92.2% in September.
The lifeboat fund's 7800 index recorded total assets amounted to £1.7trn at 31 October, while liabilities were recorded at £1.8trn.
There were changes in gilt yields over the month, with 10-year, 15-year and 20-year fixed interest yields moving 15bps; 5-to-15-year index-linked yields rose by 28bps.
Assets were reduced by a -1.4% return on the FTSE All-Share Total Return Index and a -2.1% return on the FTSE All-World Ex-UK Total Return Index.
BlackRock head of UK fiduciary business Sion Cole said: "As political parties in the UK set out their manifestos for the December general election, there is uncertainty over the path of gilt yields over the next few years."
He added: "The majority of schemes still have significant deficits against their stated long term objectives. We advocate a diversified portfolio of equities, credit and alternatives to balance risk and capture upside opportunities.
"The key is dynamism: now isn't the time to be setting and forgetting your investment strategy. Close management - or delegation of that management - will be critical to the success of pension schemes through the rest of this year and into next."
On a gilts-plus basis, scheme deficits fell £70bn in October following a fall of £50bn in September, according to PwC's Skyval Index.
At the end of last month, the estimated shortfall for all defined benefit schemes amounted to £220bn, with assets totalling £1.7bn.
PwC chief actuary Steven Dicker said: "Continuing political and economic uncertainty, both domestically and globally, means that funding levels on the gilts plus basis are likely to remain volatile.
"While hedging has helped stabilise many schemes, other remain significantly exposed. There is also the risk that traditional hedging strategies come under pressure due to leverage and liquidity constraints.
"These factors will further increase interest in cash flow driven approaches to investment and funding, especially for more mature schemes."
On an accounting basis, the aggregate deficit of FTSE 350 companies' DB schemes reduced by £9bn over the course of October, according to Mercer.
The consultancy found the month-end deficit was £41bn, with liability values falling by £23bn to £883bn and asset values dropping by £14bn to £842bn from £856bn at the end of the previous month.
Mercer blamed the continuing political uncertainty for the volatile markets.
Partner and corporate consulting leader Maria Johannessen said the decline in pension deficits was "driven by falling liability and asset values as corporate bond yields returned to the levels last seen in early August" along with falling inflation expectations.
She added: "It was a volatile month, with the deficit ranging from £58bn to £24bn in the period."
Actuary Charles Cowling said: "The political turmoil in the UK is set to continue to cause nervousness and volatility in markets.
"The Bank of England has indicated that a hard Brexit outcome would see UK interest rates fall, potentially even as low as 0%. Trustees and pension schemes also face inflationary worries, and not just from Brexit inspired weakness."
He added that the industry must "be vigilant and check for every market opportunity to take pension risk off the table, possible through the settlement of pension liabilities".
Nearly every trustee is confident of the next stage in their scheme’s strategy, despite almost an equal number being forced to consider replacing plans within the prior 12 months, according to research by Barnett Waddingham.
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.