Total deficit on pension schemes eligible to board the pensions lifeboat grew by more than £20bn in a month

It could be a tight squeeze to board the pensions lifeboat, as figures released today revealed that the total deficit value of the schemes eligible to join increased by more than £20bn in a month.

The latest PPF 7800 Index figures, which keep track of the funding position of the defined benefit (DB) pension schemes eligible for entry to the Pension Protection Fund (PPF), revealed that total deficit was £294.6bn at the end of May, up from £270.2bn at the end of April.

The funding ratio across the schemes also deteriorated from 82.6 per cent to 81.5 per cent.

Of the 5,945 schemes included in the index, 4,864 of the schemes were running a deficit, while 1,081 schemes were in surplus.

Total assets held by the schemes at the end of May were £1,296bn, while total liabilities were £1,590bn.

The PPF 7800 Index is calculated based on the premium that would need to be paid to an insurer to take on the payment of PPF levels of compensation, which are typically 90 per cent of the full value of the benefits that would have been due.

"DB deficits will only have got worse since this update as Brexit fears grip the markets," said Francis Fernandes, actuary and senior advisor to Lincoln Pensions, of today's figures. "Government bond yields have tumbled as investors head for safe havens and one wonders how UK deficits would balloon if UK followed German 10 year yields into negative territory as they have done today."

Andy Tunningley, head of strategic clients in BlackRock's UK institutional business, added: "Once again, UK aggregate pension funding deteriorated due to falling yields on long-dated bonds increasing liability values by more than the asset values. This re-emphasises the critical importance of employing liability relative investment strategies."

Tunningley added: "UK pension funds are more in the news than ever before, with the BHS and British Steel schemes occupying the few column inches not dominated by the EU referendum. These high profile cases could well see renewed regulatory focus on the risk management approaches used by trustees."

BHS was running a pension deficit worth £571m when it was placed in administration in April, which prompted the Work and Pensions committee to launch an inquiry into the role of the Pensions Regulator and the PPF.

Giving evidence to the committee last month, Alan Rubenstein, chief executive of the PPF, said that accepting BHS' pensions into the PPF was unlikely to cause an immediate rise to the levy paid by DB schemes to maintain the fund, as a certain degree of scheme failure is already built into the charge.

Meanwhile, the British Steel Pension Scheme has sparked a government consultation into what changes could be made to help cut down the scheme's substantial liabilities.