mast image

Special Report

Impact investing


Correlated assets drag pensions back into deficit

Related images

  • Correlated assets drag pensions back into deficit

UK - Defined benefit pensions schemes fell back into deficit in November, according to the UK's Pension Protection Fund, as the correlation in bond and equity yields falling reduced the value of pensions by £58bn (€81bn) within a single month.

Whereas many pension funds have been arguing in recent months the value of schemes is volatile because bond valuations rose under international financial reporting standards (IFRS), details of the PPF's 7800 index - which tracks the financial status of over 7,800 pension schemes - reveals DB fund slipped from a £53bn surplus in October 2007 into a £5bn deficit because both asset classes saw losses.

More specifically, the PPF said scheme liabilities increased and assets decreased because gilt yields and equity markets fell, pushing 78%, or 6,014, of DB schemes into deficit and dragging the aggregated position of DB funds in deficit to £73bn from £48bn in October. That said, this is less than the previous year when deficits hit £83bn.

"During the month of November 2007, lower gilt yields led to an increase in liabilities of approximately 3.8%, while there was a 3.2% fall in assets due to weaker markets. The FTSE-All Share Index fell by 3.2% over November 2007, while 10-year gilt yields fell by 26 basis points to yield by 17 basis points," said the PPF in its monthly report.

Total value of all schemes within the index is now £835bn - a 2.9% fall over the month, according to the PPF, but a 1.4% increase over the three months to November 2007 and assets are up 6.2% on the year.

A chart within the PPF study also shows (below) the point at which FTSE All-Share Index and the 10-year gilt yields ‘crossed' in 2005 and moved into a more correlated pattern of activity, compared with previous periods.

PPF pensions funding calculations are reached by assuming the value of schemes should they fall into deficit and have to be managed by an insurance company if they were to fall into the PPF.

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

Have your say

You must sign in to make a comment


Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2558

    Asset class: Private Equity.
    Asset region: Global or Swiss.
    Size: USD $5-10m.
    Closing date: 2019-08-20.

  • QN-2559

    Asset class: Multi Assets.
    Asset region: -.
    Size: EUR 15m (may be split into two mandates EUR 7.5m).
    Closing date: 2019-09-06.

  • QN-2560

    Asset class: Private Equity.
    Asset region: Global.
    Size: $40m.
    Closing date: 2019-08-30.

  • QN-2561

    Asset class: Infrastructure.
    Asset region: Global.
    Size: $40m.
    Closing date: 2019-08-30.

Begin Your Search Here