Sion Cole, Head of UK Fiduciary Business, BlackRock comments on the latest PPF 7800 Index figures: UK Pension Schemes were on the nice list this Christmas, as PPF 7800 funding levels ended the year at 98%, up 1.9% from the end of November. This increase was driven by positive performance from risk assets and rising yields causing liability values to fall by c.2.2%. December’s increase in equity markets brought to a close a strong year for equities globally, with the MSCI World index up by c.24% and the FTSE 100 up 12% over the year. Positive equity performance in December was driven by increased Brexit certainty in the UK on the back of the election result and a further decrease in global trade tensions as US and China signed a Phase One trade deal.
However, despite a buoyant year for equity markets, UK Pension Scheme funding levels are still only just back to where they finished 2018, largely due to the dramatic fall in gilt yields seen throughout the year. This has led to pension liabilities increasing by 10-15%. The result: most schemes are still some way off achieving their funding goals.
So, what should schemes consider in 2020? It seems that 2020, similar to 2019, is likely to be a bumpy ride, with geopolitics continuing to influence investment markets. Schemes should therefore look at their strategy holistically, building resilience where necessary and diversifying growth assets to ensure they are in good shape for what is to come.
Vishal Makkar, Head of Retirement Consulting at Buck in the UK comments: “An indisputable UK general election result has put an end to the long-term political uncertainty which has dominated 2019. At the same time, the corresponding increase in gilt yields saw the aggregate liabilities of the UK’s DB schemes fall in December.
“However, while the value of aggregate funding liabilities for UK DB pension schemes decreased by close to £40bn over the last month, the deficits of DB schemes have worsened from a year ago. Hopefully the UK’s new government can provide a steady hand to calm markets and bring a return to normalcy for the industry.”
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