• The aggregate deficit of UK defined benefit (DB) schemes in deficit has increased by over £117 billion in the past 12 months, from £138.7 billion in April 2019 to £256.4 billion last month (https://www.ppf.co.uk/sites/default/files/file-2020-05/PPF%207800%20at%2030%20April%202020%20for%20May%20update.pdf)
• Already struggling DB schemes have been pummelled by COVID-19 asset price falls in recent months, while big drops in gilt yields in the last year have driven liabilities north
• The value of DB scheme assets bounced 3.9% from March to April, but liabilities also increased by 3.2% over the same period
Tom Selby, senior analyst at AJ Bell, comments: “While the stockmarket bounce has provided limited succour for defined benefit (DB) schemes in the past month, the overall picture is pretty grim.
“In the past year, the total deficit of DB schemes in the red has surged by over £117 billion, from £138.7 billion in April last year to £256.4 billion at the end of last month.
“While COVID-19 has inevitably hurt schemes’ funding position since March, over a 12-month period asset values for all DB funds have actually risen 8.3%.
“However, plummeting gilt yields have driven liabilities up by almost 18% since April 2019, a shift which has undoubtedly creating a thumping headache for company bosses already struggling to find cash to reward investors through dividends.
“This will undoubtedly be a nervous time for DB members, and particularly those in schemes with big deficits who are sponsored by companies struggling as a result of the lockdown.
“It is important at times like this not to panic and remember that DB schemes enjoy significant levels of protection. Even in the worst case scenario of the scheme sponsor going bust, you should still be paid the majority of your pension via the Pension Protection Fund.”
