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03

DB deficit total rose to £164bn in March, says JLT

Open-access content Tuesday 1st April 2014 — updated 5.13pm, Wednesday 29th April 2020

The combined deficit of the UK’s private sector defined benefit pension schemes ended the month at £164bn, according to estimates published by JLT Employee Benefits today.

Based on the standard measure used in company reports and accounts, IAS19/FRS17, the assets of schemes stood at £1,139bn on March 31, while their liabilities were worth £1,303bn.

This £164bn deficit represents a slight increase from the £153bn deficit recorded by the consultancy at the end of February, as funding levels fell to 87%. But it is an improvement from the picture at the end of March 2013, when the combined deficit of the schemes was an estimated £182bn.

Charles Cowling, managing director of JLT, attributed this change to 'better-than-expected' returns on growth assets combined with additional funding contributions made by companies.

But the equity market took a 'dive' in March with shares of UK life insurers falling sharply twice over the month, said Cowling.

The first fall followed the Budget on March 19 which announced additional flexibilities for defined contribution pension schemes members.

'These changes have the potential to decimate the £12bn-a-year individual annuity market and the market responded by removing £3.5bn from the value of life insurers,' Cowling observed.

The second bombshell was the announcement of a regulator review of historic insurance policies.

Cowling went on: 'The prospects of a detailed review and retrospective changes to these polices sent shares down again, wiping another £2.5bn from the value of life insurers.'

These announcements and changes have far reaching consequences, Cowling warned, and not just for DC pension schemes.

'We expect that there will be a surge in de-risking activity in the next six month as companies take advantage of the potentially limited opportunity to remove pension liabilities from their balance sheets.'  


This article appeared in our March 2014 issue of The Actuary.
Click here to view this issue
Filed in:
03
Topics:
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