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.