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UK deficits hit £194bn in 2008

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UK - Pension scheme funding was substantially worse in the UK last year than in 2007, the Pension Protection Fund has revealed, as aggregate deficits rose to over £194bn (€ by the end of December and the total assets valued within pension funds are thought to have fallen by 12%.

Official figures just released by the PPF indicate the collective deficit of over 7,800 defined benefit funds in its sample rose from £136bn in November 2008 to £194.5bn by the end of the year, based on actuarial assumptions for s179 valuations.

This is a massive shift compared with the performance of schemes in 2007 when there was an aggregate surplus of £11.7bn.

The total value of assets held by DB schemes did rise 5.6% in December to £765bn but this was still an annual loss in the value of assets of 12.4%, suggested the PPF.

The loss in assets would also have been compounded as scheme liabilities are said to have increased by 11.4% over the year to December 2008,to £959.6bn, largely because liabilities increased 11.5% in December alone.

The PPF said based on its calculations across the sample of schemes, assets rose 3.6% increase in December thanks to UK and global equities, though the FTSE All-Share index dropped almost 33% over the year, but lower gilt yields also increased liabilities by 10% and 10-year gilt yields were down by 116 basis points.

On the back of these developments, the total deficit of schemes in deficit grew to £209.6bn by the end of 2008 from £155bn in November, and this figure was almost three times higher than in the previous 12 months as the aggregate deficit of all schemes in December 2007 was £66.7bn.

Approximately 89% of all schemes in the sample were said to be in deficit by the end of the year as the number of schemes in deficit by December 2008 had risen to 6,914, up from 6,690 schemes in November 2008.

The aggregate funding position (total assets minus total liabilities) of almost 7,800 DB funds is estimated to have worsened over the month to a deficit of £194.5 billion at end-December 2008, from a deficit of £136.0 billion at end-November 2008 (Chart 1 and Table 1).  Scheme funding is worse than it was a year previously (there was a surplus of £11.7 billion in December 2007).
 
Better-funded schemes also saw a slip in performance in the last month of the year as the total surpluses of schemes in surplus also from £19bn in November to £15.1bn by the end of December, having already dropped dramatically from £78.4bn in December 2007.

The PPF has reiterated it adjusted the actuarial assumptions it used from March 2008, as the impact of changes improved funding by about £80bn compared with estimates based on the earlier data set and actuarial assumptions.

The Pension Protection Fund acts as a lifeboat fund to the UK's defined benefit pensions industry and therefore seeks to track the true funding status of all DB schemes.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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