• A restatement of defined benefit (DB) funding data by the Pension Protection Fund (PPF) saw aggregate deficits of UK schemes in October slashed from £168.2 billion to £126 billion (https://www.ppf.co.uk/sites/default/files/2020-12/PPF7800-30-November-2020-December-update.pdf)
• The lifeboat fund says the revision reflects updated information from its recently published ‘Purple Book’ - excluding, for example, certain schemes that have entered the PPF assessment period
• Based on the new data, aggregate deficits were slashed by a further £47.2 billion in November, from £126 billion to £78.8 billion
• Surging asset prices and a bump in gilt yields in response to positive Coronavirus vaccine news both key factors
Tom Selby, senior analyst at AJ Bell, comments:
“A restatement of official pension fund data has, on the face of it, at a stroke wiped over £40 billion from UK aggregate defined benefit deficits.
“Unfortunately this does not reflect an overnight strengthening of the funding position of schemes, but rather the fact the new figure is based on more up-to-date information. For example, it removes a number of schemes – likely to be poorly funded - which have entered the PPF assessment period.
“Nonetheless, positive Coronavirus vaccine news in November has benefitted DB schemes, with soaring stock markets lifting the value of equity investments held on behalf of members.
“Furthermore, gilt yields also ticked up marginally during the month, pushing down the accounting value of scheme liabilities. The net result of these movements was a dramatic £47.2 billion drop in scheme deficits, from £126 billion to £78.8 billion.
“While this is clearly good news, these remain difficult times both for pension schemes and many of the companies sponsoring them. We have already seen Arcadia go to the wall in recent weeks and the pressure facing firms most affected by the pandemic will likely continue over the Winter months.
“Members worried about the future should at least take comfort from the fact that the PPF exists as a valuable lifeboat, paying out at least 90% of the value of their benefits should their employer go bust.”
