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Pension Funds

U.K. corporate pension funds dip back into deficit in August – report

Defined benefit plans of FTSE 100 companies saw a total deficit of 3 billion ($3.9 billion) at the end of August, following a 3 billion surplus recorded as of July 31 and a 39 billion deficit as of August 31, 2017, according to JLT Employee Benefits.

The funded status of these pension funds was steady at 100% over the month, but improved from 95% a year earlier.

All corporate funds saw their deficits increase 81% to 40 billion in August, but that was a 71.6% decrease for the year. Funding levels dropped to 98% as of Aug. 31 from 99% as of July 31, but improved from 92% a year earlier.

Total assets for all funds fell 0.3% in August but grew 0.7% for the year to 1.579 trillion, while liabilities fell 0.8% in August and 5.2% for the year to 1.619 trillion.

FTSE 350 funds also recorded an increase in deficit over the month, up to 7 billion as of Aug. 31 from no deficit a month earlier. That compared to a 49 billion deficit as of Aug. 31, 2017. Funding levels were down to 99% from 100% at the end of July but up from 94% a year earlier.

"Markets seem to be holding their breath as FTSE 100 pension funds just slipped back into deficit, having broken into surplus last month for the first time in 10 years," Charles Cowling, chief actuary at JLT Employee Benefits, said in a release accompanying the update. "The Bank of England did increase interest rates last month in a long anticipated and much signposted move. However, outgoing member of the Bank of England's monetary policy Committee, Ian McCafferty, has warned that we should be expecting low interest rates for the next 20 years — and this is coming from possibly the most hawkish member of the MPC, who has long encouraged a rise in interest rates. As a result, a subdued market has seen long term interest rates drift slightly downwards this month with inflation rates remaining broadly unchanged."

Mr. Cowling added: "So, is this the calm before the storm? U.S. equity markets continue to march ahead on the back of strong corporate profitability and tax cuts — with no one seeming overly concerned about rising debt levels. The U.K. market has been more circumspect, as equity markets have held up well, despite an unsettled political backdrop, but Brexit worries and trade fears are not far away. The current environment seems fairly fragile, and it does seem like it would not take much to spook markets and send asset prices tumbling."