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UK pension deficits stable despite market volatility, says PwC

Deficits in the UK’s defined benefit schemes have proven to be stable despite the market volatility resulting from the US election.

According to new figures released by PwC’s Pension Funding Index, there is currently a cash funding deficit of £260bn, which is close to the March lockdown peak of £290bn.

In the last month, there has been a fall in both pension fund asset and liability values, with equities falling by around 3% and government bond yields rising slightly by five basis points.

PwC is calling on pension scheme trustees and sponsors to not focus overly on their single deficit measure.

Raj Mody, head of global pensions at PwC, said: “The relative stability in pension deficits is a double-edged sword. On the one hand, it’s good that pension scheme strategies are generally able to withstand market volatility. 

“On the other hand, sponsors and trustees will want to eliminate deficits ultimately and need market outperformance to help with that. It’s not clear with upcoming headwinds when markets will deliver what pension funds need.”

He added: “Imagine you went to your doctor for a health check. Your doctor would do a variety of different tests and use a range of indicators. It’s the same for a pension fund assessment. 

“Just considering the pension scheme deficit would be like your doctor just checking your blood pressure. One test in isolation is not going to give you the full picture. There are many dimensions to pension fund financial management which all need careful management.”

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