Deficit of defined benefit pension funds over £220 billion
13 Sep 2017
Deficit of defined benefit funds at £220bn in August 2017
Data from the Pension Protection Fund (PPF) shows that of the aggregate deficit of defined benefit pension funds in the UK reached £220.4 billion in August 2017, compared with £180.1 billion at the end of July 2017. However, the deficit is much smaller than the £413.1 billion deficit seen in August 2016. This is based on data from the 5,794 pension fund schemes in the PPF 7800 Index. According to the PPF, in August 2017, there were 4,261 schemes in deficit and 1,533 schemes in surplus.
Fund ratio dips below 88%
The rising deficit on defined benefit pension funds means the funding ratio (ratio of assets to liabilities) fell to 87.6% in August 2017, compared with 89.4% at the end of July 2017. Total assets in August 2017 were £1553.0 billion and total liabilities were £1,773.4 billion. Despite the fall in the funding ratio, it remains higher in August 2017 compared with August 2016 (78.3%).
For more information on defined benefit pensions see
How the deficit is calculated
The financial positon of defined benefit pension funds is calculated on a section 179 (s179) basis, which essentially means on the basis of a premium that would have to be paid to an insurance company to take on the funds pension liabilities (i.e. payment of PPF levels of compensation). The deficit, therefore, represents total s179 liabilities minus total assets.
It should be noted that s179 is only one of a range of possible measures of the financial health of pension funds. Other commonly used measures are:
- full buy-out (what would have to be paid to an insurance company for it to take on the payment of full scheme benefits),
- IAS19 or FRS17 (the measures used in UK company accounts),
- technical provisions (that are used in the regulator’s scheme funding regime).
These different measures can lead to very different views of an individual and aggregate scheme funding.