UK company pension deficits hit record high in January
10 February, 2015
Official figures from the UK’s Pension Protection Fund (PPF) confirmed today that UK company defined benefit pension scheme deficits had ballooned to a record high of £367.5 billion in January 2015. This is an increase of 38% since December 2014 and in sharp contrast to a deficit of £46 billion at the same time last year.
This record deficit has been blamed to a large extent on historically low bond yields as a consequence of quantitative easing and lower interest rates. Pension funds discount their liabilities by the yield they expect to receive in the market in order to fund them. As a result, when yields fall, the value of their pension liabilities rises. Yields on 15 year British government bonds fell by 1.38% in January.
The PPF confirmed that of the 6,057 schemes in the PPF 7800 Index, 85% of schemes were in deficit. While the January figures show only a snapshot of the asset values at one time, it once again highlights the difficulties many UK companies are facing when managing their defined benefit pension scheme liabilities.