UK Corporate Pension Funded Levels Rise in February

Brexit expected to bring higher volatility and deficits for pensions.

The funded level of all UK private sector pension funds was 95% as of the end of February, up from 93% at the same time last year, according to JLT Employee Benefits.

“Despite the continued political turmoil in Westminster and across the EU, the last month has seen little change to the aggregate position for FTSE 100 pension schemes,” Charles Cowling, chief actuary of JLT Employee Benefits, said in a release.

“Recent inflation figures have been positive and markets are holding up despite the increasing uncertainty and proximity of a potential Brexit endgame.”

The total assets for all UK corporate pension funds was just under £1.56 trillion, with aggregate liabilities of just under £1.64 trillion for a deficit of £82 billion. This is compared to assets of £1.53 trillion and liabilities of £1.64 trillion for a deficit of £107 billion at the end of February 2018.

Among those pension funds, the funded level for the FTSE 100 corporate pensions and the FTSE 350 pensions was 98% and 97%, respectively, up from 97% and 96%, respectively, at the end of February 2018.

The deficit for the FTSE 100 pensions was nearly cut in half over the past year from £24 billion at the end of February 2018 to £13 billion at the end of February 2019. The FTSE 100 pensions had assets of £646 billion and liabilities of £659 billion, compared to assets of £667 billion and liabilities of £691 billion at the end of February 2018.

Cowling said that regardless of whether the UK leaves the EU with or without a deal, the outlook for pension deficits suggests a high risk of more volatility and potentially higher pension deficits.

“The Bank of England has said that with the uncertainty around Brexit, the next move in interest rates could be in either direction,” said Cowling. “This could be bad news for pension schemes—many of which are effectively gambling on markets and, in particular, interest rate rises to bail them out of uncomfortable deficit positions.”

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