UK pension deficits fell £50 billion in November


Deficits in defined benefit pension plans were cut by £50 billion in November, as yields on gilts and corporate bonds moved higher, according to figures from PwC.

Pension fund liabilities are often calculated by referencing government bond yields. They tend to get larger when bond years fall, and smaller when yields rise.

Interest rates on sovereign debt started to rise after an initial slump in the wake of the UK vote to leave the European Union in late June.

The election of Donald Trump as US President sent yields around the world even higher, as investors prepared for more government borrowing and increased supply. Expectations of rising inflation also fuelled a move into riskier assets.

However, despite the recent improvement in pension liabilities, PwC notes that the total pension deficit still stands at £100 billion higher than the start of the year.

Raj Mody, PwC partner and global head of pensions, added there is no quick fix. He said: “Trying to repair that in, say, 10 years could cause undue strain, akin to about 3% per year of potential GDP growth being redirected to put cash into pension funds.

“This would be like the UK economy running to stand still to remedy the pension deficit situation. If the average repair period was 20 years instead, this reduces the annual cash funding strain on sponsoring companies.”

PwC said its figures cover about 6,000 defined benefit pension funds in the UK, which guarantee payouts to retirees based on the length of time worked, age at retirement and other factors.

• A version of this article appeared on WSJ City, a made-for-mobile app that combines the best of the Wall Street Journal and Financial News, tailored for an audience in the City of London. Download here

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