The aggregate deficit of the 5,450 pension plans in the UK’s Pension Protection Fund’s (PPF) PPF 7800 index surged to an estimated £90.7 billion ($109.3 billion) at the end of July, from £51.7 billion at the end of June, sending the funding level down to 95.0% at the end of July from 97.0% at the end of June.
The position of the PPF 7800 has worsened from a year ago, when it reported a deficit nearly half as large at £26.1 billion, and a funding level of 98.4% as of the end of July 2018.
Within the index, plan assets totaled nearly £1.73 trillion at the end of July, a 2.4% increase over the month, and a 6.8% from the same time last year. Meanwhile, total plan liabilities were just over £1.82 trillion at the end of July, a 4.6% increase from the previous month, and a 10.6% increase from the year-ago month.
The aggregate deficit of all plans that were in deficit at the end of July increased to an estimated £218.8 billion from £189.3 billion at the end of June, and from £162.3 billion at the end of July 2018. Meanwhile, the aggregate surplus of the plans in surplus decreased to £128.1 billion from £137.6 billion at the end of June, and from £136.3 billion at the end of July 2018.
The number of pension plans in deficit at the end of July increased to 3,396, representing 62.3% of the total 5,450 defined benefit plans, from 3,275 at the end of June (60.1%), and 3,196 at the end of July 2018 (58.6%). Meanwhile, the number of plans in surplus decreased to 2,054 at the end of July (37.7% of plans) from 2,175 at the end of June (39.9%), and 2,254 at the end of July 2018 (41.4%).
Equity markets and gilt yields are the main drivers of pension plan funding levels in the UK, according to the PPF. Liabilities are sensitive to the yields available on a range of conventional and index-linked gilts, and are also time-sensitive. The PPF says that even if gilt yields were unchanged, plan liabilities would increase as the point of payment approaches. The value of a plan’s assets is affected by the change in prices of all asset classes, but equities and bonds are the biggest drivers behind changes, said PPF. Bonds have a higher weight in asset allocation, but equities tend to be more volatile.