DB pension deficits up £94bn to £168bn in last year

The combined deficit of UK defined benefit pension schemes increased by £2.1 billion in October to £168.2 billion, according to new data from the Pension Protection Fund (PPF).

Over the past 12 months aggregate DB deficits have surged by £93.9 billion, in part because the yield on UK Government debt securities – which pension schemes use to match liabilities – has remained persistently low.

A deficit of £74.3 billion was recorded at the end of October 2019.

The data shows the funding level of defined benefit pension schemes decreased from 91.4% at the end of September 2020 to 91.2%.

Total assets were £1.753 billion and total liabilities were £1.921 billion.

There were 3,617 pension schemes in deficit and 1,805 pension schemes in surplus.

The deficit of the schemes in deficit at the end of October 2020 was £279.5 billion.

AJ Bell senior analyst Tom Selby said: “Defined benefit pension deficits remained eye-wateringly high at £168.2 billion in October, while the number of schemes facing up to a deficit has risen 10% over the past 12 months to 3,216.

“The main driver behind surging DB deficits over the past year – and indeed the previous decade or so – has been persistently low UK Government gilt yields. 

“Because a pension scheme’s liabilities are calculated based on the returns available from gilts, a lower yield leads to higher deficits.

“In this context the Bank of England’s announcement of £150 billion more QE – deemed necessary to prop up the UK’s ailing economy during lockdown – could be like throwing kindling on an already roaring pensions fire. 

“The Bank’s decision to buy more UK gilts should push up the price of gilts and in turn suppress the yield, driving up liabilities and heaping further pain on employers already shouldering the burden of enormous historic DB pension promises as well as dealing with the fallout from the Coronavirus pandemic.

“On the other side of the coin, of course, if the Bank’s intervention helps keep those companies afloat then in the long-run it may well actually preserve the pensions entitlements of millions of workers. 

“Yesterday’s positive vaccine news could also help, with the 10-year UK gilt yield jumping from 0.25% to 0.4% in anticipation of a brighter outlook for the economy if (and hopefully when) it is rolled out to the population.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.