The Pension Protection Fund (PPF) has revealed that the aggregate deficit of the defined benefit (DB) schemes in the PPF 7800 index have decreased over the month of July.
The deficit fell by £18.6bn to £115.7bn at the end of July 2013 from the previous month, and the PPF noted that this was an improvement from last year when a deficit of £292.6bn was recorded at the end of July 2012.
The reason for this decrease is because assets rose by 2.7% mainly due to a rise in equity markets, while liabilities increased by only 0.9% over the same period, reflecting lower nominal gilt yields.
Over the month of July 2013, 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%.
The total assets of the 6,316 schemes within the index rose by 2.7% to £1,131.2bn over the month, while total liabilities increased by 0.9% to £1,246.9bn.
By the end of July, the funding ratio rose from 89.1% to 90.7%, which is higher than the 78.2% recorded in July 2012.
The number of schemes in deficit decreased to 4,568 over the month, which represents 72.3% of the total schemes in the index, while the number of schemes in surplus increased to 1,748 from 1,624 at the end of June 2013.
Arno Kitts, head of BlackRock's UK Institutional Business, said: "A key driver of deficits falling has been the increase in longer-term bond yields while liabilities have not been fully hedged. However, deficits remain substantial, so pension schemes should continue to consider avoiding unrewarded risks and evolving their investment strategies to plug the gap.
"Given the publication of the Bank of England's (BoE) forward guidance, schemes which have delayed hedging should continue to consider at what yields they would increase their hedging. The BoE also appears relatively relaxed about the prospects for inflation in the medium term, so schemes should consider the impact of this and identify investments which offer inflation protection."
First published 13.08.2013
monique_simpson@wilmington.co.uk
