UK pension deficit falls to £420bn, according to PwC’s Skyval Index

Aug 01, 2017

New figures released today from PwC’s Skyval Index show the deficit of defined benefit (DB) pension funds stood at £420bn at the end of July 2017, a £40bn decrease since last month.

PwC’s Skyval Index, based on the Skyval platform used by pension funds, provides an aggregate health check of the UK’s c.5,800 DB pension funds.  The current Skyval Index figures are:

 

Assets

Liability target

Deficit

Deficit change since last month

Funding measure (current)

£1,550bn

£1,970bn

£420bn

£40bn decrease

Steven Dicker, PwC’s chief actuary, said:

“The funding liability at the end of July stands a little lower than the end of June so, with relatively static asset values, this has led to the third consecutive monthly decrease in deficit.

“As a result,  the proportion of  liabilities covered by assets of UK pension schemes has reached its highest point since the Autumn of 2014, at 78.7%. However, the monetary value of the gap between assets and liabilities, at £420bn, remains higher than what it was 3 years ago.

“Part of this is due to schemes not being hedged against the fall in gilt yields, to what have been historically low levels.  However, while this hedging would have reduced the disclosed deficit on the "gilts plus" funding approach, it is important to realise this wouldn't necessarily improve the actual long-term outturn for schemes.”

Ends.

Notes to editors

  • Jeremy May, UK head of pensions at PwC,  is available for interview - please contact Katherine Howbrook on 020 7212 2711/07595 609 737 or katherine.howbrook@pwc.com

Notes on deficit measures:

  • Funding measure: the target used by pension fund trustees to determine company cash contributions, calculated on a bespoke basis for each pension fund, agreed between the trustees and sponsor.

  • Figures provided have been estimated by PwC and Skyval based on publicly available data of UK defined benefit pension funds, including from the Pensions Protection Fund’s dataset.

  • Other pension deficit measures exist but are generally not meaningful for tracking the health of UK pension funds.  For example:

  • Accounting: the target value of liabilities shown in company accounts, based on formal accounting standards (such as IAS19) which typically assume asset returns in line with AA-rated corporate bond yields. Pension decision-makers should not rely on the accounting measure to inform their management decisions.  Accounting numbers are not designed to be tailored to individual pension fund circumstances.  Some commentators publish IAS19 tracking figures but they are not in isolation a good basis for understanding pension funding status, nor deciding the best future strategy for any given pension fund's assets and liabilities.

  • Buy-out: the value an insurer would typically place on the fund's liabilities, which depends on prevailing market terms for these kinds of transactions. It is a hypothetical scenario for all pension funds to buy out their total liabilities in one go, as there is not enough capital market capacity to support this. Some commentators cite the theoretical deficit on such a buy-out basis as in the region of £1trn, but, in practice, this is not a cost which could or would ever be incurred in this way.

About Skyval

Skyval is a pensions platform which trustees, sponsors and all advisers can use for their pension scheme, as a single and confidential tool for their scheme-specific funding, investment, analytics and benchmarking requirements.

The Skyval suite of modules includes Skyval Dashboard, Skyval Monitor, Skyval Choice, Skyval Optimiser, Skyval Accounting and Skyval Insure. Skyval helps pension schemes reduce costs, manage risks and make better decisions faster. Visit www.skyval.com, follow @SkyvalOnline or connect on LinkedIn

 

About PwC

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