Pension scheme deficits continue to be sensitive against market conditions, but remain lower than a year ago

The pension deficit of many of the UK’s largest companies fell by £16bn during May, with the aggregate deficit amongst FTSE 350 companies falling to £34bn from £72bn at the start of the year. This continues an improved funding level for schemes at those companies which saw a rise in the 12 months to April 2018 from 94% to 97%.

This is despite figures in the PPF’s 7800 index for the year to 31 March 2018 showing an increase in scheme deficits from the end of February. The aggregate deficit across 5,588 PPF eligible schemes showed that on a section 179 basis (which estimates the funding needed to secure PPF compensation levels with an insurance company), scheme deficit levels rose during March to £115.6bn, compared to £72.1bn at the end of February but fell from £161.8bn as at the end of March 2017. That represented a shift in overall funding levels from 90.5% to 93.1%.

The worsening position during the early part of the year was at least in part ascribed to an increase in pension liabilities of 2.5% over the same period as the yield on conventional 15 year gilts fell by 19 basis points, but those market movements have reversed slightly in the second quarter of 2018 leading to the improving funding figures.

The surveys on scheme deficits are, as with all statistics, capable of producing divergent results dependent on the subjects surveyed.

• The aggregate scheme deficit in the 7800 index looking only at schemes in deficit stands at £217.6bn; down from £246.7bn last year
• The JLT monthly index at the end of April saw pension deficits in FTSE 100 companies fall from £40bn last year to £15bn in 2018

Perhaps predictably, volatility has been partly blamed on market instability caused by fears of potential trade war between the US and its international competitors.