DB funding - August 2020: Strong markets return £59bn deficit reduction

Professional Pensions
clock • 3 min read

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

The latest positions

PPF 7800

The aggregate section 179 deficit of the 5,422 schemes in the Pension Protection Fund (PPF) 7800 Index fell by £59bn to £140.5bn over the course of August.

The sharp improvement in the funding level - from 89.9% to 92.6% - was largely due to a significant drop in the value of liabilities, from £1,975bn to £1,895bn. While asset values also fell, this was much less marked, moving from £1,775bn to £1,755bn.

The funding level is only marginally lower than the 93% recorded at the end of August last year, when the deficit was £130bn - but it is still a way below the 99.4% reported as of 31 December.

Throughout August, 10-, 15- and 20-year fixed-interest gilt yields rose by 22 basis points (bps), 24bps, and 26bps respectively, while the 5-to-15-year index-linked gilt yield rose by 10bps.

Meanwhile, the FTSE All-Share Total Return and FTSE All-World Ex-UK Total Return indices rose by 2.4% and 4.2% respectively.

The number of schemes in deficit fell by 179 to 3,506 who together recorded a £258.6bn deficit. The remaining schemes in surplus were overfunded by £118.1bn.

Chief finance officer and chief actuary Lisa McCrory commented: "The PPF 7800 Index this month shows an overall improved position. The aggregate deficit of the 5,422 schemes dropped by £59bn on last month to £140.5bn, driven by market movements.

"The schemes' funding level recovered by 2.7 percentage points to 92.6%, only slightly short of the 93% recorded this time last year, with scheme funding benefiting from both rising gilt yields and equity prices."


The combined gilts-plus deficit of UK pension schemes fell by £40bn during August, according to PwC's Skyval index.

The aggregate shortfall fell from £270bn to £230bn, while the funding level rose by 1.6 percentage points to 88.4%. Total liabilities amounted to £2trn, compared to £1.8trn of assets.

However, the funding level remains below the 91.1% recorded at the end of 2019, when the deficit was recorded at £170bn.

Chief actuary Steven Dicker said: "Gilt yields have increased over the month, which has resulted in a modest reduction in pension liability values at the end of August. While this has meant a slight fall in the value of government bonds, there was also a small rise in equity markets. Overall, pension scheme deficits reduced by £40bn.

"The economic journey out of the pandemic remains uncertain. Refreshing strategy and keeping focus on effective risk management remains key for both scheme sponsors and trustees, so that they remain in the best shape possible to capture opportunities and ensure scheme members' benefits are delivered in full."


The accounting deficit of FTSE 350-sponsored schemes fell by £21bn over the course of August, according to Mercer's funding tracker.

The consultancy recorded aggregate defined benefit (DB) liabilities of £940bn on an IAS 19 basis, down £30bn from the end of July, while assets dropped £9bn to £858bn.

Overall, the deficit was £82bn, leading to a 1.9 percentage point higher funding level of 91.3%.

Chief actuary Charles Cowling said: "August was a quiet month for most pension schemes with markets holding up well and long-term inflation worries easing."

However, there continues to be considerable economic uncertainty arising from Covid-19 - with the Bank of England holding interest rates at record low levels while predicting a 9.5% shrinking of the UK economy, the latter of which factors in no second wave in the pandemic and a successful Brexit trade agreement with the EU.

Cowling added: "With all this systemic risk in the economy and markets, trustees are urged to monitor carefully and be ready to seize opportunities to reduce risk and increased hedging programmes. Now may be a good time for trustees to consider a move to lower-risk contractual cashflow-matching investments."

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