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UK DB deficit increases to £173bn

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  • UK DB deficit increases to £173bn

UK - The aggregate deficit of almost 7,400 DB funds worsened by £15.1bn (€17.3bn) over the month of August to reach £173.2bn by the month-end, according to the Pension Protection Fund (PPF).

Figures from the September update of the PPF 7800 Index -- which provides the latest estimated funding position on a s179 basis - showed the deterioration was even more marked as compared with the position at end-August 2008, when the combined deficit was only £39.3bn. However, in the intervening period it had become even worse, reaching a low point of £240bn at end-March 2009.

The number of schemes in deficit rose from 6,265 schemes in deficit in July to 6,304 in August. In contrast, the number of schemes in surplus decreased from 1,116 in July to 1,077 in August. This represents a 43% fall over the 1,904 schemes in surplus in August 2008.

The total deficit of schemes in deficit in August 2009 is estimated to have worsened to £194.6bn from £179.0bn at the end of July. The total surpluses of schemes in surplus increased to £21.4bn from £20.9bn at end-July. 

The PPF ascribed the worsening of the funding position to falling equity markets and bond yields. It said that lower bond yields resulted in a 9.6% increase in aggregate liabilities, while weaker equity prices reduced assets by 3.1% over the year.

Total scheme assets reached £836.4bn by end-August 2009, a 4.8% increase over the month and a decrease of 0.4% over the year to August 2009. But scheme liabilities increased by 5.6% over the month to £1,009.6bn, a 14.8% increase over the year to August 2009.

David Cule, principal, Punter Southall, says: "What these figures show is the gradual improvement in this creeping recovery we are seeing. There is still a significant shortfall, but it is a slight improvement from the dramatic shortfalls we saw from last summer until spring 2009."

But John Ball, head of defined benefit consulting at Watson Wyatt, warned: "A £173bn deficit on any measure underlines why pensions will be a major boardroom headache not only in the recession but well into any recovery."

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