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Companies need extra £10bn per year for next decade just to fund new pension deficits built up in 2016, according to PwC’s Skyval Index

01 Jan 2017

  • UK pension funding deficits increased by £90bn in 2016

  • The EU referendum result had the biggest short-term impact on pension deficits in 2016, with a one-day £80bn increase

  • Pension funds experienced strong asset performance in the year, but not enough to make up for lower expected future asset returns

New figures released today from PwC’s Skyval Index show the deficit of defined benefit (DB) pension funds stood at £560bn at the end of 2016, £90bn higher than at the start of 2016. If companies tried to repair the additional  deficits which arose during 2016 within 10 years, this would cost an extra £10bn per year.

PwC’s Skyval Index, based on the Skyval platform used by pension funds, provides an aggregate health check of the UK’s c.6,000 DB pension funds.  The current Skyval Index figures are:


Assets (December 2016)

Liability target (December 2016)

Deficit (December 2016)

Deficit change since November

Deficit change since start of 2016

Funding measure




£20bn decrease

£90bn increase

Accounting measure




£10bn decrease

£130bn increase

The funding measure is the approach used by pension fund trustees to determine company cash contributions (see notes to editor for definitions on deficit measures).

Key 2016 activity included:

  • Aggregate pension deficits in UK private sector funded DB schemes increased by £80bn from 23 to 24 June 2016, following the EU referendum result

  • Following the Bank of England’s interest rate cut and QE announcement in early August 2016, pension asset values increased by £60bn over the following week, due to significant rises in bond and equity markets, but pension funding targets increased by more than double that amount (£130bn)

  • Pension deficits peaked in late August, at £710bn

The table below summarises the impact on UK DB pension deficits of various events over 2016:

Source: Skyval Index

* Long term gilt yield

** Implied inflation over the next 17 years, as published by the Bank of England and based on the difference in yields on government bonds which are and are not inflation linked.

Raj Mody, PwC’s global head of pensions, said:

“2016 saw huge change and volatility for pension funds, and the start of a renewed debate about how to measure and finance long-term pension commitments.

“I expect that 2017 will be the year when pension fund trustees and sponsors reach more informed conclusions about how to tackle their pension deficit and financing strategy. Those involved are increasingly realising the importance of transparency in order to decide appropriate strategy. Defined Benefit pensions are long-term commitments stretching out over several decades and so there is limited value in pension funds making decisions based on simplified information. There is a need to understand the cashflow profile of the fund year-by-year, not just summarised figures.” While the aggregate deficit for DB pensions appears to have deteriorated considerably over 2016, the impact for individual funds will vary.”

Raj Mody added:

“Gilt yields have long been the foundation of pension deficit measurement and financing, with a belief that calibrating everything to current market expectations was the best version of the truth. This may have been ‘good enough’ as an approach in more benign market conditions, but it does not necessarily make sense to fix your strategy for the next couple of decades based on the situation at any single point in time. Now is the time for pension fund trustees to ask whether the current management information and analytics they receive is fit-for-purpose for all the decisions they need to make.”

PwC notes that, if companies aim to repair their pension deficits over 10 years, they will have to find an extra £10bn of funding per year to do so, because of the new deficit built up over 2016. Having longer deficit repair periods in appropriate cases can help avoid undue strain on companies and economic growth.  

Raj Mody concluded:

“Last year we identified that pension funding deficits are nearly a third of UK GDP. Trying to repair that in too short a time could cause undue strain. In some situations, longer repair periods may make sense. This can help reduce cash strain by allowing the passage of more time to see if pension assets outperform relative to the prudent assumptions currently used when trustees calculate deficit financing demands. It’s not necessarily sensible to calculate deficits prudently and then try and fund that conservative estimate too quickly. Equally, if all parties can get a realistic deficit assessment, it could well be in everyone’s interest to make that good as soon as possible.”


Notes to editors

  • Raj Mody is available for interview - please contact Katherine Howbrook on 020 7212 2711/07595 609 737 or

Notes on deficit measures:

  • Funding: 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.

  • Accounting: the target value of liabilities shown in company accounts, based on formal accounting standards which 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 not designed to be tailored to individual pension fund circumstances.  They are not in isolation a good basis for deciding the best future strategy for a 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. The theoretical deficit on such a buy-out basis would be in excess of £1trn.

  • 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.

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, follow @SkyvalOnline or connect on LinkedIn

About PwC

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see for further details. © 2016 PwC. All rights reserved

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