Connected Research

Union policy research in the 21st century

PPF7800 shows fall back

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The Pensions Protection Fund has this morning published its September update of the health of UK defined benefit pension schemes. The news isn’t good – the improvement it reported in August has been reversed, with the combined deficit of schemes falling back from £176bn to £194.6bn.

The reason for the fall is that gilt yields, which are used to measure the present value of scheme liabilities, fell in August – thus leading to an increase in the value of scheme liabilities. In July for comparison, gilt yields rose – Chart 4 of September’s Update shows the impact of this month-to-month reversal in gilt yields very well.

Otherwise, the number of schemes in deficit rose slightly, standing at 85% of the total. Total scheme assets rose 4.8% on the month to £836.4bn while liabilities rose 5.5% on the month to just over £1 trillion. Over the past year, asset values have fallen by 3.1%, compared to a 9.6% increase in liabilities.

It is clear that the situation is still very volatile. More worrying, however, was the sharp fall in gilt yields during August – Chart 7 suggests a collapse and while Chart 8, which takes a much shorter timeframe, shows the fall to be less dramatic, it is clear that gilt yields declined sharply, amid fears over economic recovery and a lowering credit agency rating in view of the UK’s borrowing requirement. September thus far seems to have described something of a recovery (see the Bloomberg data here), albeit not to the levels even at the start of August, so the good news is that the August gilt yield data would not seem to be part of a long-term decline (while gilt yields remain, nevertheless, well above what they were earlier this year).

A continuation of the decline in gilt yields would really cause problems for continuing defined benefit schemes but it would seem that the immediate future is more likely to be characterised by one of volatility in the PPF7800 Index. Which, in turn, may provide scant solace for schemes and trustees.


Written by Calvin

09/09/2009 at 1:07 pm

Posted in Pensions

Tagged with , ,

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