The deficit of schemes eligible for the Pension Protection Fund (PPF) decreased by £18.2bn to £51.7bn over June, as total scheme assets increased by 1.6 per cent over the month.
In the latest PPF 7800 Index, which estimates the funding position of 5,450 schemes, the total funding level increased from 96 per cent at the end of May 2019 to 97 per cent a month later.
The position is slightly worse than a year ago, when the lifeboat recorded a deficit of £45.8bn at the end of June 2018, but significantly worse that the £6.4bn deficit recorded at the end of April 2019.
Commenting on the results, Blackrock head of distribution for UK fiduciary management, Sion Cole, said: “June was a washout for most in the UK, but pension schemes weathered most of the storms to finish with improved funding levels over the month … primarily due to equity markets recovering to close to their April peaks.”
Total scheme assets were record at £1,689.3bn at the end of June, marking a 5 per cent increase for the year, while liabilities increased by 0.5 per cent over the month to £1,741bn, a 5.2 per cent over the year.
The index reported that 3,275 of the schemes were in deficit, while the remaining 2,175 schemes recorded a surplus.
Aviva Investors investment strategist, Niran Patel, believes that despite a positive start to the summer for pension schemes, volatility ahead remains.
“Whilst the picture is positive for both funding levels and deficits in June, market uncertainty is expected to continue for the second half of 2019, with the outlook for the global economy deteriorating in recent months," he says.
“UK pension schemes can expect some volatility in the short term with the arrival of a new Prime Minister, a fast approaching Brexit deadline on 31 October, as well as the ongoing House of Lords RPI review, which could materially impact RPI-linked liabilities and assets.”
Cole added: “Mercer’s 2019 European Asset Allocation Survey which showed that 73 per cent of UK pension schemes are now cash flow negative. Perhaps more interesting is that schemes seem to still be reliant on selling assets to meet these benefit payments, meaning they might be reducing growth assets at the wrong time and further compounding their funding woes in the future.”
According to Cole, as schemes approach self-sufficiency they should be looking at combining liability-driven investment, investment grade credit and income generating private market assets.
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