The deficits of British defined benefit pension plans continue to decrease, according to separate reports from UK government-funded safety net the Pension Protection Fund (PPF) and consulting firm Mercer.
According to the PPF’s 7800 index, which tracks 5,794 pension plans, the aggregate deficit of British defined benefit plans decreased to £180.1 billion ($234.2 billion) at the end of July 2017, from a deficit of £186.2 billion at the end of June 2017, a 3.3% drop. Compared to the £333.5 billion deficit the PPF reported at the end of July 2016, that’s a 46% drop over the past year.
The PPF said the funding ratio of the plans improved to 89.4% at the end of July from 89.1% at end of June, and from 81.4% at the end of July 2016. The PPF also reported that there were 4,156 pensions in deficit, while 1,638 recorded a surplus.
The plans had total assets of £1.525 trillion, and total liabilities of £1.705 trillion. Total assets increased 0.7% over the month, and increased 4.6% over the year. Total liabilities increased 0.2% for the month, and decreased 4.9% from the same period last year.
Additionally, the aggregate deficit of all plans that held a deficit at the end of July 2017 is estimated to have decreased to £257.9 billion from £262.1 billion at the end of June 2017, and from £377.5 billion at the end of July 2016. The total surplus of plans that had a surplus increased to £77.8 billion from £75.9 billion at the end of June 2017, from £44.1 billion at the end of July 2016.
The number of plans in deficit at the end of July decreased to 4,156, representing 71.7% of all the defined benefit plans tracked by the PPF. There were 4,182 plans in deficit at the end of June 2017 (72.2%) and 4,734 in deficit at the end of July 2016 (81.7%).
Meanwhile Mercer reported that its pensions risk survey data shows that the accounting deficit of defined benefit pension plans for the UK’s 350 largest listed companies fell nearly 7% to £122 billion at the end of July from £131 billion at the end of June. It reported that liability values fell by £4 billion to £865 billion compared to £869 billion at the end of June. Asset values were £743 billion, compared to £738 billion at the end of June.
“The welcome trend of improvements in the deficit over recent months continues during July,” said Ali Tayyebi, a senior partner at Mercer. “This was largely driven by a small reduction in market expectations for long-term inflation, which reduces the pension liability values.”
Tayyebi added that “as past experience has shown, periods of steady improvements can be reversed quickly. The most important question for most pension schemes should therefore be about getting the right balance between protecting improvements in their funding position and relying on continued out-performance from risk-based or unmatched asset strategies.”