UK - Rising bond yields and equity markets have improved the funding levels of 7,800 defined benefit schemes, the Pension Protection Fund (PPF) said today.
Schemes with a total of £835bn (€1.23trn) in assets under management saw their aggregated £8bn deficit reported in June 2006 reverse into a £99bn surplus this year.
In the first of a new series of monthly indices on the funding level of DB schemes, the PPF reveals "the volatility of pension fund deficits over the last five years resulting from movements in the financial markets".
Rising equity markets helped increase scheme assets by around 12.7% last year while higher bond yields cut aggregate liabilities by around 8.6%, the PPF found.
In total, 61% of schemes or 4,750 are still in deficit (down from 6,002 last year) but the combined deficit of all underfunded schemes has more than halved over the last 12 months from £66bn to £30bn.
The PPF uses scheme valuation data and adjusts it to an estimated funding position on a s179 basis to compile its monthly calculations. These figures show how much would have to be paid to an insurance company to take on the payment of PPF levels of compensation.
Critics last week argued the index might lead to a 'herd mentality' among pension funds.
"By publishing an index, the PPF may persuade funds that they are taking too much or too little risk in comparison [to their peers] and may encourage them to follow a ‘herd' mentality rather than making the best decisions for their own particular circumstances," said Danny Vassiliades, principal actuarial consultants Punter Southall.