On the go: The aggregate deficit of the UK’s 5,588 pension schemes in the PPF 7800 Index has nearly tripled over October to £107.7bn at the month’s end, from a deficit of £38.7bn at the end of September 2018.
October saw funding levels fall from a previous high (97.7 per cent) to 93.6 per cent, lower than at the start of the year.
Total assets were £1,588.2bn and total liabilities were £1,695.9bn. There were 3,755 schemes in deficit and 1,833 schemes in surplus.
Commenting on the latest PPF 7800 Index figures, Andy Tunningley, head of UK strategic clients at BlackRock, said: “Perhaps aptly for the month in which Halloween falls, markets got spooked in October. Equity markets fell to levels not seen since the beginning of the year, driven by tighter financial conditions and elevated worries about the impact of heightened US-China trade tensions, which also sent credit spreads wider.
“For pension schemes, asset falls were compounded by liabilities rising due to declining gilt yields (10 and 30-year yields falling c.13 and 4 basis points to 146 per cent and 1.91 per cent respectively) and increased inflation expectations (up 8bp to 3.35 per cent) reinforcing our call for trustees to build greater resilience into their portfolios.”
He concluded: “Those schemes which had taken advantage of funding level improvements earlier in the year by derisking will be sitting happier than those which hadn’t.”
Index-linked gilt shortage ahead
In the Budget, the chancellor signalled that he would continue reducing the proportion of index-linked gilt issuance.
Mr Tunningley commented: “While this has had a limited immediate impact on the yield curve as it was largely priced in, for pension schemes with inflation linked liabilities this is clearly an area to watch.
“A reduction in supply could put further downward pressure on yields as prices rise, making it harder for schemes to hedge these liabilities at a reasonable cost.”
