Pension Deficits Improve But Still Languish In Red

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The see-saw deficits of Britain’s workplace pensions have improved so far in 2017 – but are still worryingly in the red for retirement savers.

The latest figures from pension experts PwC’s Skyval Index show that the combined deficit of nearly 6,000 UK employer pension schemes was £450 billion at the end of November.

That’s £90 billion better than the £560 billion the schemes had dropped into the red at the start of the year, but a £40 billion increase from October’s £50 billion drop to £410 billion.

The Skyval index is based on the platform pension funds use to manage their schemes.

The latest figures show that the combined assets of the pension schemes is £1,560 billion, with liabilities of £2,010 billion.

No help from rate rise

Steven Dicker, PwC’s chief actuary, said: “Despite the increase in short-term interest rates by the Bank of England, long-term real interest rates, which are the main driver of the pension deficit number, moved slightly in the opposite direction.

“This has resulted in a £60 billion increase to liabilities over the month, with assets growing modestly at £20 billion, resulting in a net £40 billion increase in the deficit.

“The economic drivers of long-term interest rates are complex, and they are further impacted by supply and demand factors including quantitative easing, which leads to month to month swings in the deficit calculation using the ‘gilts plus’ approach.”

Yo-yo performance across 2017

Gilts plus is the funding measure applied by most pension schemes and is considered the best way of tracking the financial health of a pension.

The fund liability is calculated as benefits due to be paid to pension scheme members, while the deficit is the amount of assets the fund must pay as benefits less the liability.

The index has almost seen a yo-yo action of a deficit increase immediately followed by a corresponding deficit decrease across the whole year.

Workplace Pension Deficits 2017

Month Deficit (billions) Change (billions)
January £560 £20
February £470 -£90
March £520 £50
April £500 -£20
May £530 £30
June £510 -£20
July £460 -£50
August £420 -£40
September £460 £40
October £410 -£50
November £450 £40

 

Source: PwC Skyval Index

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