13 September 2011
The Pension Protection Fund produces a monthly index update (the September release has data taken as at 31 August) of the estimated funding position of the DB schemes potentially eligible for entry into the Fund.
Total scheme deficits showed an increase from £67.3bn as at end July to £117.5bn as at end August. This increase was somewhat smaller than the £60bn increase last month, but nevertheless is not welcome news. The PPF’s universe aggregate funding ratio fell to 89.2% from 93.7%. As we expected, the fall in funding levels has occurred both due to a decrease in asset levels and an increase in the assessed value of liabilities.
We have been asked why the s179 measure of liabilities tends to lead to a higher funding ratio than the calculation of Technical Provisions as embedded in an actuarial valuation, despite the former being carried out at a presumed level of buying insurance cover and the latter at a prudent level.
The difference lies in the more restricted scope of liabilities covered under s179:
- Existing pensioners receive compensation at 100% with future increases capped at 2.5% pa
- For members below pensionable age, compensation will be paid at 90%, with an annual cap of just under £30,000. Additional inflation-linkage is capped at 5% pa for accrual prior to April 2009 with a 2.5% pa cap for accrual after that date
(full detail is available on the PPF website, with a link below).