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Pension Funds

U.K. corporate pension deficit drops 45% in May; funding improves to 97%

The total deficit of U.K. corporate defined benefit funds fell 45% in May and 68% for the year ended May 31, to 43 billion ($57 billion).

The latest update by JLT Employee Benefits showed the funding level of these plans improved to 97% as of May 31, up from 95% a month earlier and 92% as of May 31, 2017.

Assets grew 2.6% in May to 1.58 trillion and 1.2% over the 12-month period. Liabilities were flat for the month but dropped 4.7% for the year to 1.62 trillion.

FTSE 100 company pension funds saw their deficit fall 73% to 4 billion as of May 31, with a funding level of 99%, compared with 98% as of April 30. For the year ended May 31, the deficit fell 89% and the funding level improved from 95% as of May 31, 2017.

FTSE 350 companies in the U.K. saw their pension fund deficits fall 59% over the month and 80% over the year ended May 31, to 9 billion. The funding level as of May 31 was 99%, compared with 97% as of April 30 and 94% a year earlier.

"Markets continue to be positive for pension funds, and overall, reported pension deficits are showing a strong improvement from 12 months ago," said Charles Cowling, director at JLT, in a news release. "Indeed, the FTSE 100 is very close to showing an aggregate surplus in its pension funds for the first time in a decade."

"However, crucial for pension funds, is the outlook for interest rates." Mr. Cowling said. "It had been thought likely that the Bank of England's Monetary Policy Committee would raise interest rates at their meeting in May, but that did not materialize. Indeed, two factors suggest that the next rise in interest rates could be some months away yet. There were positive signs on inflation with the latest figures revealing a headline rate of 2.2%, down from 2.3% last month."

Mr. Cowling added: "Secondly, there has been a change announced to the Bank of England's Monetary Policy Committee this month, with Professor Jonathan Haskel set to replace Ian McCafferty from September. Mr. McCafferty has consistently been one of the more hawkish members of the MPC, voting against the majority in favor of raising interest rates."