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Impact Investing

IPE special report May 2018

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Improved equity returns lower pension deficits

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  • Improved equity returns lower pension deficits

UK - Positive activity in the equity markets lowered the UK's total pensions deficit last month, however the aggregate funding level of UK pension funds is still at a deficit of £158bn (€184bn).

Latest projections from the Pension Protection Fund (PPF) suggest scheme funding was still worse at the end of July than a year ago, when the total deficit was £18.8bn, but improvements in equity returns have lowered the total deficit from £200bn at the end of June this year.

UK and global equities rose by 3.8% in July - the FTSE All-Share index rose 8.5% in July - while higher gilt yields lowered liabilities by 1.9%.

That said, the FTSE All-Share index is still down 14.4% in the year to July 2009 and gilt yields have fallen 100 basis points in that time, which between them have led to a worsening of the funding position of pension funds, noted the PPF.

Lower bond yields has created a 9.7% increase in pension fund liabilities, as they tend to adopt a discount rate based on an AA-rated corporate bond, and poor equity values have lowered assets by 3.7%.

The total deficit of schemes in deficits fell in a month from £215.8bn to £178bn, according to the PPF, while the total surplus of schemes in surplus rose from £15.9bn to £20.9bn. This compares with a total surplus of schemes in surplus of £58.9bn this time last year.

There were 196 fewer schemes in deficit at the end of July compared with a month earlier, said the PPF, but 85% of UK defined benefit schemes are still in deficit.

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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