UK Pension Deficits Widen in December

Despite monthly increase, deficit is 54% lower than previous year.

The total deficit of the nearly 5,600 pension plans covered by the Pension Protection Fund’s (PPF) PPF 7800 Index increased £16.2 billion to £103.8 billion during December, from a deficit of £87.6 billion at the end of November. During that time, the funding ratio decreased to 93.9% from 94.7%.

Despite the increase in the deficit for the month, it’s still down 54% from the same time the previous year, when liabilities outstripped the pension plans’ assets by £223.9 billion.

According to the PPF, the total assets for all plans increased 1.7% in December, and were up 7.7% from the previous year. Meanwhile, total liabilities were £1,693.3 trillion, up 2.6% at the end of December 2017, but down 0.4% over the year.

For the month, the number of plans in surplus fell to 1,878 from 1,925, but that was up from the 1,455 plans that were in surplus at the end of December 2016. And although the total surplus of plans in surplus decreased to £106.3 billion from £109.4 billion at the end of November, it was still well above the total surplus of all plans in surplus at the end of December 2016, when it was £66.4 billion.

Meanwhile, the number of plans in deficit rose in December from 3,663 to 3,710, or 66.4% of all defined benefit plans in the index.  However, this was still well below the 4,339 plans in deficit at the end of December 2016, which represented three-quarters of all plans at the time. Among the plans in deficit, their combined shortfall increased to £210 billion from £197 billion at the end of November. This is compared to £290.2 billion at the end of December 2016.

The PPF reported that liabilities increased by 2.6%, while conventional 15-year gilt yields fell by 12 basis points, and index-linked 5-to-15 gilt yields fell by 11 basis points over the month. At the same time, assets increased by 1.7% in December as a result of higher equity and bond prices. Over the year to December, 15-year gilt yields were down by 7 basis points, index-linked 5-15 gilt yields were up by 13 basis points, and the FTSE All-Share Index was up by 8.5%. 

According to the PPF, equity markets and gilt yields are the main drivers of funding levels, and liabilities are sensitive to the yields available on a range of conventional and index-linked gilts.

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