PPF 7800 Index deficit jumps back up to £69.9bn

After dropping to a low of £6.4bn at the end of last month, the Pension Protection Fund has revealed the aggregate deficit of schemes in the PPF 7800 Index jumped up to £69.9bn at the end of May 2019.

The position is worse that a year ago when a deficit of £53.8bn was recorded at the end of May 2018. The increase in the deficit this month has also seen the funding level of schemes decrease over the month from 99.6 per cent to 96.0 per cent at the end of May 2019. The funding level is lower than the 96.8 per cent recorded in May 2018.

Within the Index, total scheme assets amounted to £1,662.4bn at the end of May 2019. Total scheme assets increased by 0.8 per cent over the month and increased by 3.0 per cent over the year. Total scheme liabilities were £1,732.3bn at the end of May 2019, an increase of 4.6 per cent over the month and an increase of 3.9 per cent over the year.

The aggregate deficit of all schemes in deficit at the end of May 2019 is estimated to have increased to £199.1bn from £157.2bn at the end of April 2019. At the end of May 2018, the equivalent figure was £179.5bn. At the end of May 2019, the total surplus of schemes in surplus decreased to £129.2bn from £150.8bn at the end of April 2019. At the end of May 2018, the total surplus of all schemes in surplus stood at £125.7bn.

In addition, the number of schemes in deficit at the end of May 2019 increased to 3,382, representing 62.1 per cent of the total 5,450 defined benefit schemes. There were 3,089 schemes in deficit at the end of April 2019 (56.7 per cent) and 3,333 schemes in deficit at the end of May 2018 (61.2 per cent). The number of schemes in surplus decreased to 2,068 at the end of May 2019 (37.9 per cent of schemes) from 2,361 at the end of April 2019 (43.3 per cent). There were 2,117 schemes in surplus at the end of May 2018 (38.8 per cent).

Commenting on the index, BlackRock head of distribution for the UK for fiduciary management, Sion Cole, said: “With the Cricket World Cup having started and already producing some surprise results, UK pension scheme trustees may have been reminded of the risks of being complacent when things are going well. Having ended April on a high note, the PPF 7800 index dropped back over May, conceding 3.6 per cent in funding level terms to finish at 96.0 per cent.

“Entering May at all-time highs, cheap wickets were lost as equity markets reacted negatively to expectations of increased US tariffs on China and Mexico, falling 3-5 per cent over the month. Bonds rallied so total scheme assets rose slightly but this was not enough to prevent funding levels from dropping.

"UK 10-year and 30-year gilt yields fell around 0.25-0.96 per cent and 1.52 per cent respectively, below where they started the year. Indeed 10-year gilt yields ended the month at less than 1 per cent, the lowest they have ever been, other than around the UK-EU referendum three years ago. Once again, schemes with higher levels of hedging would have been able to bat out the month relatively unscathed, their matching assets keeping up with the 4.6 per cent rise in liability values.”

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