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Weak equities increase DB deficit by over £40bn

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  • Weak equities increase DB deficit by over £40bn

UK - The aggregate deficit of almost 7800 defined benefit schemes increased by more than £40bn (€54bn) in January to record the highest deficit for almost two years, the Pension Protection Fund (PPF) has revealed.  

February figures from the PPF 7800 Index revealed a fall in the total funding position of DB schemes for the third consecutive month following weaker equity markets and a drop in gilt yields.

The monthly research showed the aggregate deficit rose from £19.6bn in December 2007 to £61.2bn at the end of January 2008, which is the highest recorded deficit since February 2006 and is significantly worse than the £31.9bn surplus reported in January last year.

In addition, the figures show the total number of scheme in deficit increased to 6,466, representing 83% of the total DB schemes, while the total deficit of these schemes rose from £82.4bn at the end of December to £106bn in January.

As a result, the number of schemes in surplus fell 4% from 2,132 schemes to just 1,282, while the total surplus of the 17% of schemes in surplus dropped to £44.8bn compared to £62.9bn in the previous month.

The PPF also revealed the total value of scheme assets amounted to £817.3bn, which represents a fall of 3.3% in the first month of the year, and a fall of 4.9% in the three months to January.

The report blames the fall in asset value on weaker equity markets, as the FTSE All Share Index fell 8.7% in January, although it pointed out lower gilt yields of just 4.5% on 10-year bonds, caused scheme liabilities to increase around 1.6% over the last month.

That said, the PPF highlighted "despite weaker UK equity markets, aggregate scheme assets have risen by around 0.8% in the past year due to strong global equity markets".

But it admitted the positive impact of global equity on scheme assets "has failed to offset falling bond yields, leading to an overall worsening of the funding position".

The February funding figures - calculated on a section 179 (S179) buy-out basis using scheme valuation data - is the eighth monthly update on the DB funding position, although the PPF revealed the underlying data for the Index "will be revised in the coming months to allow for a more up-to-date database" following the publication of the Purple Book 2007 and the receipt of new scheme data.

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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