Retirement savers have seen Britain’s company pension black hole shrink by £1 billion a day over recent weeks.
Last month saw £40 billion wiped off the total owed by 5,800 workplace pension schemes – taking debt down to £420 billion.
A health check by business consultants and accountants PwC says deficits have now fallen for three months in a row and look as if they will continue to do so for some time.
But PwC’s chief actuary Steven Dicker warned: “However, the monetary value of the gap between assets and liabilities of £420 billion remains higher than what it was three years ago.”
According to the company, the pension schemes have combined assets of £1,550 billion and liabilities of £1,970 billion.
Hedging helps funding gap
“The funding liability at the end of July stands a little lower than the end of June so, with relatively static asset values, this has led to the third consecutive monthly decrease in deficit,” said Dicker.
“As a result, the proportion of liabilities covered by assets of UK pension schemes has reached its highest point since the autumn of 2014, at 78.7%.
“Part of this is due to schemes not being hedged against the fall in gilt yields, to what have been historically low levels. However, while this hedging would have reduced the disclosed deficit on the “gilts plus” funding approach, it is important to realise this wouldn’t necessarily improve the actual long-term outturn for schemes.”
The firm measures the funding target used by pension trustees to calculate company cash contributions to their pensions.
More powers for pension watchdogs
The funding target is considered the most accurate way to measure the state of a pension scheme.
Pension fund deficits are considered a ball and chain for many leading UK companies that have to divert profits from their businesses into funding pension pledges.
Telecoms firm BT alone is struggling to bridge a £9 billion pension shortfall amid warnings from City regulators that too many companies are rewarding shareholders with dividends rather than plough money into their pensions.
The government is considering giving The Pensions Regulator (TPR) extra powers to make sure companies put the retirement finances of workers before paying dividends to investors.
