RegulationNovember 19, 2018

UK Corporate Pension Deficit Nearly Triples in October

Aggregate deficit of PPF 7800 balloons to £107.7 billion as funding level drops 4.1%.

Reported by Michael Katz

The aggregate deficit of the 5,588 defined benefit pension plans in the PPF 7800 Index increased to £107.7 billion ($139.2 billion) at the end of October from £38.7 billion at the end of September, lowering the funding level to 93.6% from 97.7%, according to the Pension Protection Fund (PPF), the UK’s pension lifeboat for collapsed companies.

Total assets decreased by 1.6% over the month, but increased by 1.7% over the year, while liabilities increased 2.6% from the previous month, and 2.8% from the year-ago month. The funds had total assets of approximately £1.588 trillion, with total liabilities of approximately £1.696 trillion. The position of the funds has worsened from October 2017, when the deficit was £87.7 billion, and the funding level was 94.7%.

The number of plans in deficit at the end of October increased to 3,755,

representing 67.2% of the total, compared to 3,437 plans in deficit at the end of September (61.5%) and 3,652 in deficit at the end of October 2017 (65.4%). At the same time, the number of plans in surplus fell to 1,833, representing 32.8% of the total, down from 2,151 at the end of September (38.5%), and 1,936 at the end of October 2017 (34.6%).

The aggregate deficit of all the plans in deficit at the end of October rose to £212.8 billion from £170.3 billion at the end of September, and from £196.7 billion at the end of October 2017. Meanwhile, the total surplus of plans in surplus decreased to £105.1 billion from £131.6 billion at the end of September, and £109 billion at the end of October 2017.

The PPF said that during October, conventional 10- and 15-year gilt yields fell by 13 basis points and nine basis points, respectively, while 20-year gilt yields fell by seven basis points, and index-linked 5-15 gilt yields fell by 19 basis points. Gilt yields, along with the equity markets, are the main drivers of the plans’ funding levels.

Over the year to October, conventional 10-year gilt yields were up by five basis points, while the 15- and 20-year gilt yields were down by four and seven basis points, respectively. The index-linked 5-15 year gilt yields were down by 3 basis points, as the FTSE All-Share Index was down by 5.2% and the FTSE All-World Index was down by 2.5%.