The aggregate deficit of defined benefit (DB) schemes potentially eligible for entry to the UK’s Pension Protection Fund (PPF) is estimated to have increased from £124.6bn (€141bn) to £135.9bn over the course of March, the PPF announced today.
This is equivalent to a fall in the funding ratio from 93.2% at the end of February to 92.5% at the end of March.
There were 114 more schemes in deficit at the end of March than one month before, according to the new PPF figures. The deficit of the schemes in deficit grew £9.3bn, from £244.8bn at the end of February to £254.1bn.
The change in the deficit of schemes in deficit on a so-called section 179 basis is an illustration of the impact of changes in financial markets on the PPF’s total exposure.
A scheme’s s179 liabilities represent, broadly speaking, the premium that would have to be paid to an insurance company to take on the payment of PPF-levels of compensation. Schemes in surplus on an s179 basis at the time of insolvency usually do not enter the DB lifeboat fund.
A spokesperson for the £32bn PPF said the drop in schemes’ funding position over March was caused by a decrease in equity prices, the effect of which was offset to an extent by a decrease in liability values of around 1.6% due to an increase in index-linked bond yields.
Sion Cole, head of UK fiduciary business at BlackRock, said that since the start of the year funding levels have fallen 5.5%.
“However, the variation around these figures will be significant, depending on the size of a scheme’s equity and credit allocations and amount of liability hedging,” he said.
“In short, it’s been a torrid start to the year for pension schemes and the volatility doesn’t look set to disappear anytime soon.”
Earlier this month the PPF said the COVID-19 outbreak was causing “daily changes to the way we work”.
Commenting on the fund’s business plan for 2020/21, PPF chief executive officer Oliver Morley added: ”The extent of the impact is, of course, unknown at this stage. We have chosen to leave our objectives as they stand but we accept that there may be challenges to achieving our objectives within the next 12 months.”