Research by PWC

Research by PWC shows funding deficit for DB pension schemes has fallen to £200 billion as of April 2018

Research under taken by PricewaterhouseCoopers (PWC) has shown that the funding for the defined benefit (DB) pension schemes in the UK have dropped to £200 billion as of May 2018.

PWC’s Skyval index, which is founded on data from 5,800 DB pension funds and gathered from Skyval pensions platform, discovered the funding for UK DB schemes had decreased by £250 billion since November 2017 and April 2018.

By the end of April 2018 pension assets were £1,560 billion according to the current funding measure. This is used by the pension trustees to decide an organisations’ cash contribution.

PwC’s chief actuary, Steven Dicker, has stated:

“The funding position has improved considerably over recent months, meaning the deficit has fallen from £450bn in November 2017 to £200bn now.

“This is due to three key factors: adoption of the latest UK pension fund dataset (as published in the 2017 PPF Purple Book, which shows a reducing universe of schemes); increases in long-term real interest rates; and allowance for revised mortality projections based on our 2017 survey of assumptions adopted by pension scheme trustees, which reflect the continued slowdown in the rate of increase in life expectancy.

“However, the funding level is likely to remain volatile throughout 2018 as Brexit negotiations and economic uncertainty continue.”

What does this mean for clients?

Debt burdened construction firm Carillion fell into liquidation in January 2018 after it failed to reach agreement with creditors.

With debts already reaching £1 billion, Carillion has a large pension deficit but what does this mean for members of the pension schemes held with Carillion?

Carillion’s members total around 28,000 with 12,000 already claiming their pension with which there are currently 13 “final salary” pension schemes in the UK. The Pension Protection Fund (PPF) has now absorbed these schemes.
Carillion has a stated pension deficit of £587 million but experts have predicted that the real figure could be as high as £800 million.

Unfortunately, under PPF rules, not all Carillion pension holders will receive their full pension.

Those yet to reach retirement may see cuts of 10-20%. Carillion pension holders will receive an initial pension cut of 10% in which some may lose some of their inflation proofing.

Many other Carillion pension holders may face caps on their pension payments. The cap currently stands at £34,655 with exceptions being made to long serving employees who may see an increase in their cap.

If you think you may have a pension in the UK that could be affected by the pension deficit please contact one of our advisors today to see how we can help.