UK - The aggregate funding position of around 7,400 defined benefit (DB) schemes has improved by just over £9bn to a deficit of £179.3bn (€207.6bn), according to the Pension Protection Fund (PPF).

Figures from the June update on the PPF 7800 Index showed the number of schemes in deficit fell for the second month in a row to 6,389, or 87%, while the number of schemes in surplus in May increased to 13%, or 992 from a total of 953 in April. (See earlier IPE article: Improved equity returns cut DB deficit by £50bn)

As a result, the total deficit of schemes in deficit fell from £204.8bn at the end of April to £196.8bn a month later, although this is still significantly higher than the deficit of £45bn recorded in May 2008.

The total surplus of schemes in surplus also improved by just over £1bn to £17.5bn, compared to £96bn a year earlier, while the overall funding position of the 7,400 schemes saw the deficit drop from £188.5bn to £179.3bn.

That said, despite the improvement the PPF 7,800 Index showed scheme funding is still much lower than the same period in 2008 when the Index recorded an overall surplus of £51bn at the end of May.

The Index attributed the improvement to a 1.2% increase in assets, resulting from rising UK and global equities, while higher gilt yields caused liabilities to fall 0.6% over the month.

Following the increased returns total scheme assets in May reached £778.9bn, while liabilities fell to £958.2bn, although the figures showed over the year to May 2009 assets had fallen by 9% while scheme liabilities increased by 19%.

Rash Bhabra, head of corporate consulting at Watson Wyatt, said this means "things have recently got a bit better but only after they got much worse", albeit this is the first time in a year that the funding position has improved two months in a row.
"It would take a much longer period of good news to get pension schemes back to anything like the £51bn surplus the PPF was reporting a year ago," said Bhabra. "Employers hope investment returns will help get their schemes back in the black but there is no guarantee they will and, even in benign scenarios, pension deficits will put considerable pressure on company finances for years to come."

Bhabra also said that the continued deficits is "one reason why we expect more employers to close their final salary schemes to existing members over the coming months and instead offer pensions where the cost to the company is more predictable at the outset".

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