UK - The aggregate deficit among UK defined benefit schemes has again risen, exceeding £280bn (€360bn), according to the latest figures from the Pension Protection Fund (PPF) 7800 Index - with Towers Watson warning once more about how the increased shortfall will result in higher levy charges by the lifeboat scheme.
According to the latest deficit calculations for the end of July, aggregate liabilities were up £32bn over the end of June, with assets increasing by 1.6% month-on-month.
As a result, the funding ratio of the more than 6,400 funds monitored by the PPF fell by 0.7 percentage points to 78.9%.
However, the PPF also calculated that liabilities had risen by more than 25% in the last year as a result of falling UK bond yields, with the aggregate deficit now standing at £283bn.
Discussing the impact of the increased deficit on the PPF’s levy, Towers Watson repeated its warning that payments would be likely to increase by an average of 25% next year.
Senior consultant Joanne Shepard noted that the scheme had “hoped” to keep future levy payments stable when it introduced a formula averaging the market condition.
“However, because today’s conditions are so much worse than those seen five years ago, steep levy hikes in 2013-14 look more likely by the day unless the formula is changed,” she said.
Shepard added that the PPF had aimed to raise £550m in payments over the current financial year, but said that if the way of calculating the levy was left in place, the figure could increase by more than 25% - with the consultant saying that the impact would be “moderated”, a reference to a statutory maximum increase of a quarter to payments.
“Employers should remember that the 25% cap only applies in aggregate,” she said. “Even if the total increase in expected revenues comes in below 25%, there will be some schemes that could anticipate more dramatic increases in their individual levy bills.”
The government has recently come under pressure from consultants and the business sector to review the way the levy is calculated, amid concerns that the steep increase in payments could damage funds.
In other news, the number of bulk annuity transfers nearly doubled in the second quarter, with providers writing £914m worth of business.
According to figures compiled by Aon Hewitt, the largest transfer completed between April and June was a £270m deal agreed between the West Midlands Integrated Transport Authority pension fund and Prudential, with Gartmore and the Pension Insurance Corporation agreeing a £160m transaction.
Aon Hewitt said: “The market’s focus continued to be on pensioner buy-in opportunities, with full buy-ins - with the exception of Gartmore - and buyouts being unachievable for most schemes given the low level of bond yields and consequently high deficits.”
While Legal & General and Aviva agreed the largest number of deals - 19 and 14, respectively - PIC secured the largest share of transactions, with its five deals accounting for £408m, or 44% of last quarter’s market.