UK – The aggregate deficit in UK defined benefit (DB) schemes fell over the course of July, with coverage rising above 90%, a significant year-on-year increase.

According to the monthly Pension Protection Fund 7800 index, assets under management rose by nearly £30bn (€35bn), offsetting an £11bn increase in liabilities to £1.25trn.

Commenting on the July figures, the PPF said: “Over the month, scheme assets rose by 2.7%, and, over the year, there was an increase of 7.8%”

However, the average DB scheme’s funding ratio was noticeably increased to 90.7% over the previous July due to a combined increase in assets and fall in liabilities – resulting in a 12.5% percentage point increase in coverage.

The PPF noted that the fall in deficit year on year, as well as the slight increase in deficit over the course of July, was down to the continued fluctuations in nominal Gilt yields.

“Over the month of July, 15-year Gilt yields fell by 6 basis points, 15-year index-linked Gilt yields stayed the same, and the FTSE All-Share index rose by 6.7%,” it said.

It added that Gilt yields had risen by 91 basis points over the course of the last year, compared with a nearly 20% increase in the value of the FTSE All-Share.

Commenting on the figures, Rash Bhabra, head of corporate consulting at Towers Watson, noted that the coverage ratio had increased from 81% only three months ago.

Pointing out that deficit-reduction payments are usually based on valuations from the end of March or April, Bhabra said: “If market movements have already done some of the heavy lifting, this can reduce the contributions employers need to budget for and might take the edge off some challenging negotiations with pension scheme trustees.”

In other news, a survey covering the governance activities of pension managers, trustees and actuaries has found only one-quarter would describe the way information is shared internally as ‘satisfactory’.

According to the survey, conducted by eShare, 11% said the way information was shared between departments was below satisfactory, and only 23% rated the internal approach as satisfactory.

This was despite the overwhelming majority – 90% of respondents – acknowledging that governance was an increasingly important area to which they needed to pay attention.

The survey noted that improved governance was accepted as triggering higher overall management costs.

“In regard to costs associated with governance, risk and compliance, 63% stated that these have increased,” the survey concluded.

“However, 82% believe getting good governance practices in place will lead to long-term reduced costs.”

Topics