DB scheme deficits up £12.6bn

Statistics on the aggregate funding position among the index of 7,783 defined benefit pension schemes monitored by the Pension Protection Fund reveal a yawning £36.7bn deficit for the month of August, up from £24.1bn at the end of July.

The figures for August 2008 were in striking contrast to those at the same time last year, when the PPF7800 index enjoyed a surplus of £59.1bn

Although the value of underlying assets among the schemes in the index actually rose by 4.2% in August, this was wiped out by a greater rise in their liabilities for the month. The PPF said that across the sample of schemes, total scheme assets amounted to £832bn in August, representing an increase of 4.2% ­ but added that scheme liabilities increased 9.9% over the year to £869bn by August, and were also up 5.6% from July.

PPF’s estimates are based on scheme valuation data, adjusted to consistent dates on an approximate basis, using changes in market indices for principal asset classes and the fixed interest and index-linked gilt yields used to value liabilities.

“During the month of August 2008 there was a 3.5% increase in assets due to rising UK and global equities,” the PPF said. “Meanwhile, lower gilt yields led to a rise in liabilities of approximately 5%.”

It added that in the past year, falling equity markets and bond yields have led to an “overall worsening” of the funding position ­ for example, lower bond yields saw a 9.9% increase in aggregate liabilities, while it reported that weaker equities reduced assets by 4.1%.
The number of schemes in deficit in August rose to 5,982, up from 5,865 in July, or 77% of the index.

The PPF pays compensation to eligible schemes under its remit when a company goes bust or when there are insufficient assets in a scheme to meet the PPF’s agreed compensation level.
The figures follow a report from actuary firm Lane Clark & Peacock in early August that revealed UK pension schemes among FTSE-100 companies were plunged into a £41bn deficit in mid-July, compared to a £12bn surplus in July 2007.
www.pensionprotectionfund.org.uk