ResearchOctober 22, 2020

UK DB Plans’ Funded Ratio Falls to 91.4% in September

Meanwhile, the aggregate deficit of UK defined benefit plans rose to £166.1 billion during the month.

Reported by Michael Katz

The aggregate deficit of the 5,422 UK-based defined benefit (DB) pension plans tracked by the Pension Protection Fund’s PPF 7800 Index rose to £166.1 billion ($214.9 billion) during September from £140.5 billion at the end of August. As a result, the aggregate funding level of pensions decreased to 91.4% from 92.6% during the month.

The funding level of the plans is also down from the same time last year. The aggregate deficit was £117.6 billion at the end of September 2019, and the funding level was 93.6%.

The aggregate asset value of the plans in the index totaled more than £1.771 trillion at the end of this September, an increase of 0.9% over the month and 2.2% over the year. Meanwhile, total liabilities were nearly £1.938 trillion at the end of September, an increase of 2.2% from August, and an increase of 4.7% from September 2019.

The number of plans in deficit at the end of September increased to 3,588, or 66.2% of all of the plans in the index, up from 3,506 at the end of August, or 64.7%, and 3,422 at the end of September 2019, or 63.1% of the funds in the index. And the aggregate deficit of those plans in deficit increased to £279.6 billion at the end of September from £258.6 billion at the end of August, and from £239.3 billion during the year-earlier month.

Meanwhile, the number of plans in surplus decreased to 1,834, or 33.8% of all plans at the end of September from 1,916, or 35.3% of all plans at the end of August, and 2,000 plans, or 36.9%, at the end of September 2019. And the total surplus decreased to £113.5 billion from £118.1 billion at the end of August, and £121.8 billion at the end of September 2019.

According to the Pension Protection Fund, equity markets and gilt yields are the main drivers of funding ratios, and liabilities are sensitive to the yields. It also said liabilities are time-sensitive, so that even if gilt yields were unchanged, plan liabilities would increase as payment time approaches. Additionally, equities and bonds are the biggest drivers behind changes, and although bonds have a higher weight in asset allocation, equities tend to be more volatile.