DB funding - July 2020: PPF 7800 deficit grows another 14%

James Phillips
clock • 4 min read

Every month, several firms issue trackers of the aggregate defined benefit (DB) scheme funding position. See here for the July 2020 estimates on the various measures…

The latest positions

PPF 7800

Pension Protection Fund (PPF) eligible schemes saw a £24.7bn increase in their combined section 179 deficit over the course of July, hitting £199.5bn by the end of the month.

The figure is the highest shortfall recorded by the lifeboat fund since February 2017 when it was recorded at £242bn. The increase over July represents a 14% increase, while the deficit has surged from £10.9bn to £199.6bn since the end of 2019.

Over the course of July, assets fell marginally by £0.5bn to £1,775bn, while liabilities soared by £24.3bn to £1,975bn. The overall funding level dropped by 1.1 percentage points to 89.9%.

During July, 10-, 15- and 20-year fixed interest gilt yields fell by six, five and four basis points (bps) respectively, while the five-to-15-year index-linked gilt yield fell by 9bps.

Meanwhile, the FTSE All-Share Total Return and All-World Ex-UK Total Return indices fell by 3.6% and 0.8% respectively.

By the end of July, an additional 68 schemes had fallen into deficit on the s179 basis, with a combined deficit of £306.4bn among the 3,685 schemes. The 1,737 schemes in surplus had overfunding totalling £106.9bn.

Buck head of retirement consulting Vishal Makkar said the "month-on-month wobbles are nothing compared to the turbulence schemes have endured so far this year".

He added: "As every indication suggests that the UK economy is heading for a severe recession, The PPF will undoubtedly come under pressure. Even with recent interventions by the government, large sectors such as hospitality and travel could still see mass insolvencies. If the PFF does end up taking on large numbers of pension scheme members as a result of sponsor failures, the outcome could have devastating effects for both retirees and employees all over the country. 

"One of the strange, but tragic, quirks of the current situation is how unevenly the economic impact has been felt - some sectors have even thrived in the crisis, while others have ground almost to a complete halt. Pensions scheme trustees from the latter group can still work hard in the interests of their members, by managing risks and good governance. However, without certain and clear intervention from the government and big banks, there may be little more trustees can do when the sponsor simply has no cash to put in the pension scheme or the business."



The aggregate gilts-plus deficit of the UK's defined benefit (DB) schemes was £270bn at the end of July, the same level as the previous month, according to PwC's Skyval index.

The tracker said both assets and liabilities did not move significantly over the month, remaining at £1.78trn and £2.05trn respectively.

The funding level was also stagnant at 86.8%. 

Nevertheless, the deficit and funding level figures have deteriorated significantly since the end of 2019, when they were £170bn and 91.1% respectively.

Chief actuary Steven Dicker said: "Amid a backdrop of some lockdown measures being eased and economic activity starting to pick up, but concerns around Covid-19 remaining, the markets remained reasonably steady. As a result, both liabilities and assets of the UK DB corporate pension universe are unchanged from June.

"The long-term impact of the pandemic on the economy remains uncertain, so trustees and sponsors need to stay focused on risk management. While the overall position may have remained reasonably stable, individual schemes have fared very differently depending on how well their risk management approach and governance framework has responded to the crisis."


The aggregate deficit of FTSE 350-sponsored defined benefit (DB) schemes grew by £13bn over the course of July on an IAS 19 basis, according to Mercer.

At the end of the month, the deficit amounted to £103bn, compared to £90bn at the end of June. Liabilities rose by £13bn to £970bn, while assets remained static at £867bn.

The overall funding level fell by 120 basis points to 89.4%. It is the fourth consecutive month in which the index has recorded a fall in funding levels, following a one-month boost in March to 101.3% on the back of rising corporate bond yields which disproportionately improve accounting positions as compared to other pension scheme funding bases.

When excluding March, Mercer's index showed funding levels have fallen every month since the 95.7% recorded in November last year. Last month's figure is the lowest recorded by the index since the 85.5% reported in July 2017.

Chief actuary Charles Cowling said many sectors were still operating in "crisis mode" with some experts predicting the economy will not recover until 2024 after shrinking by over 10% this year.

He added: "These are testing times for trustees who, more than ever, need to understand the financial challenges facing sponsoring employers. Focus will be on the Bank of England this week as it meets to review interest rates. Although a change to base rates is unlikely, it seems that markets are already pricing in a cut to negative rates and the bank is expected to publish a report on the prospect of negative rates.

"Now is not the time for pension trustees to be increasing investment risk. Rather, where possible, trustees should consider reducing risk, takingg market opportunities to increase hedging programmes and contemplate lower-risk contractual cashflow-matching investments."

James Phillips
Author spotlight

James Phillips

Professional Pensions journalist from 2016-2022

More on Defined Benefit

Could the rush to buyout soon be over?

Could the rush to buyout soon be over?

While buyout is still viewed as a gold-standard, many are now considering run-on as an option

Stephanie Hawthorne
clock 22 April 2024 • 9 min read
Tender Watch: Access pool looks to appoint two private equity allocators

Tender Watch: Access pool looks to appoint two private equity allocators

LGPS pool expects total assets for the mandates could reach £6bn

Professional Pensions
clock 22 April 2024 • 1 min read
Industry welcomes proposals to grant DB schemes easier access to surpluses

Industry welcomes proposals to grant DB schemes easier access to surpluses

Providing schemes access to surpluses could be of ‘great benefit’ to sponsors and members

Martin Richmond
clock 18 April 2024 • 8 min read