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UK funding update: April put DB schemes into deficit

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UK - The funding position of around 7,400 defined benefit (DB) schemes deteriorated by approximately £2.5bn (€2.91bn) in April, according to latest figures from the Pension Protection Fund (PPF).

Meanwhile the monthly pension funding index from Pension Capital Strategies (PCS) says that at the end of April 2010, the total deficit of all UK private sector DB schemes had reached £210bn, or a funding level of 83%.

Figures from the PPF's 7800 Index for April showed the number of schemes in deficit had increased by 34 to 5,066, while the total deficit of these schemes reached £74.4bn, up from £73.3bn in March.

In addition the total surplus of the 2,276 schemes in surplus fell by £1.3bn to £72.3bn. This resulted in the overall funding position of the DB schemes moving from a £300m surplus in March to a deficit of £2.2bn a month later.

The PPF highlighted in the monthly update that assets had fallen approximately 0.5% in April as a result of falling UK and global equities, with the FTSE All Share falling by 1.6% over the month. This was slightly offset by a change in gilt yields that helped reduce scheme liabilities by 0.3%. 

At the end of April, the sample of schemes reported total assets of £913.3bn, down 0.2% from March, and liabilities of £915.4bn, a slight increase from the £915bn reported a month earlier.

However the £2.2bn deficit remains a significant improvement on the position in April 2009 when the overall funding position resulted in a deficit of £188.5bn, with just 953 schemes in surplus.

Elsewhere the (PCS) monthly index on pension scheme funding positions reported an overall deficit of £210bn for all UK private sector schemes, with combined assets of £1.02trn and liabilities of £1.23trn measured on an IAS19/FRS17 accounting basis. 

In a breakdown of the overall funding position, PCS claimed FTSE100 companies with DB schemes had a combined deficit of £73bn, or an 84% funding level, while FTSE350 companies had a slightly higher deficit figure of £88bn, but an equivalent funding level of 84%.

Unlike the PPF figures, the PCS index claims this had deteriorated from April 2009, when the overall deficit for all UK private DB schemes was £115bn, and the FTSE100 and FTSE350 schemes had deficits of £52bn and £60bn respectively.

Charles Cowling, managing director of PCS, said: "We have seen a big recovery in equity markets in the last year with UK equities producing an investment return of nearly 40% in just 12 months."

But he warned: "Despite this impressive investment performance, DB pension liabilities have grown even faster. As a result pension deficits have widened in the last 12 months. We are continuing to see companies take big steps to reduce pension risks and liabilities, but 2010 looks like it will not be an easy year for UK pension schemes."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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