Figures released today from PwC’s Skyval Index show the deficit of defined benefit (DB) pension funds stood at £290bn at the end of September 2019, down by £50bn on the previous month.
PwC’s Skyval Index, based on the Skyval platform used by pension funds, provides an aggregate health check of the UK’s c.5,450 corporate DB pension funds. The current Skyval Index figures, based on the 'gilts plus' method widely used by scheme actuaries, are:
The fall in the deficit follows a £100bn jump throughout August which saw the deficit rise to its highest level since early 2018.
Steven Dicker, PwC’s chief actuary, said:
“There has been an improvement in the assessed deficit over the month due to a small rally in gilt yields combined with a slight fall in inflation expectations. However, gilt yields remain at historic lows and poorly hedged schemes will continue to feel the brunt of this volatility.”
Notes to editors
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.
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
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