Last month I reported on the record deficit level of UK DB pension funds (as reported by the PPF 7800 index). In spite of reasonable asset returns in recent years, the recent large falls in long dated yields had driven liabilities higher (nearly doubling in 5 years).
In February the volatility in long dated yields continued, although the move in the month reversed a small part of the previous trend, with yields rising and liabilities falling (by about £130bn in aggregate or c8%) compared to the previous month. This meant the aggregate deficit fell from the record high of £370bn to £250bn (which is still a level that has been rarely seen historically as shown on the chart above). The aggregate level of solvency of UK schemes remains at a precariously low level.
I should note at this point that the data here, being taken from the PPF 7800 index measures liabilities on the section 179 basis used for PPF purposes. By the PPF’s own calculations this results in a liability number that is up to 30% lower than a full buyout basis (Source: PPF purple book March 2014 chapter 4).
To put these moves into context the deficit was £61bn just 12 months ago, and there was a surplus as recently as June 2011.
These moves show that the major driver of UK pension funding position continues to be moves in long term interest rates.