The total deficit of U.K. corporate pension funds covered by the Pension Protection Fund's 7800 index increased 30.2% for the month, and 83% in the year ended June 30, to £383.6 billion ($496.4 billion).
The funded status of the 5,945 pension funds in the index fell to 78%, from 81.5% as of May 31, and from 77.9% as of June 30, 2015.
Conventional 15-year gilt yields fell 48 basis points in June, and index-linked 15-year gilt yields fell 44 basis points. Liabilities jumped 9.8% during the month to £1.747 trillion. In the year ended June 30, liabilities increased 21.2%, while 15-year gilt yields fell 97 basis points. Index-linked 15-year gilt yields dropped 63 basis points over the 12-month period. The PPF uses the annualized yield on the FTSE U.K. gilts 15-year fixed-interest index, and the index-linked equivalent for its analysis.
The increase in liabilities more than offset a 5.2% increase in assets over the month, and a 10.7% increase over the year, to £1.363 trillion. The FTSE All-Share index rose 2.5% over the month, but was down 1.5% over the year. The PPF said in an update that the monthly index increase largely reflected the impact of higher gilt prices.
The proportion of the pension funds covered by the index that were in deficit as of June 30 rose to 84%, from 81.8% as of May 31, and from 77.9% as of June 30, 2015.
Andy Tunningley, head of U.K. strategic clients at BlackRock, said in a comment relating to the PPF data that U.K. pension funding “has never been in a more perilous state.” He said the funding ratio is close to its lowest level ever, “following the result of the U.K.'s referendum and the ensuing perfect storm of heightened volatility and collapsing bond yields. Our long-held view is that most pension funds are exposed to too much interest rate risk and should be increasing their liability hedge ratios. We believe that recent events make this even more critical.”
