The pension black holes of thousands of companies have closed by £250 billion in just six months.
Figures from accountancy giant PwC show the deficit for 5,800 direct benefit workplace pensions has shrunk from a £450 billion gap in November 2017 to £200 billion at the end of April 2018.
The pensions have liabilities to pay members £1,760 billion with assets covering £1,5650 billion of the amount, leaving the gap of £200 billion.
The change is not due to companies making extra contributions, but the revision of underlying figures on paper.
Steven Dicker, PwC’s chief actuary, said: “The funding position has improved considerably over recent months, meaning the deficit has fallen from £450 billion in November 2017 to £200 billion now.
Paperwork changes
“This is due to three key factors: Adoption of the latest UK pension fund dataset; 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.”
PwC monitors the state of the UK’s corporate pensions with Skyval, a system which uses a funding tracker called a pension deficit measure, which is adopted by most companies to calculate their cash contributions to the schemes.
So, what do these figures mean to workers saving into a company pension?
What the figures mean
In real terms, Britain’s companies have £1,560 billion in the bank to pay pension promises of £1,760 billion.
But the gap between what they have and what they need to pay is an accounting figure rather than an actual financial figure.
If interest rates and share prices tick up, the gap will shrink without the companies having to pay in any more cash, which is what the directors are hoping will happen.
Also, some companies have funds in a better state than others – a few have paid in enough cash to cover their retirement pledges to workers while others owe their funds more money than the companies are worth.
