UK pension funding deficits remain at nearly one-third of UK GDP, despite recovery of £50bn in November

A £50bn improvement in the deficit of defined benefit pension funds in November 2016 failed to offset declines earlier in the year, leaving the total deficit at £580bn.

The deficit is still over £100bn higher since the start of the year, according to PwC’s Skyval Index.

Deficits have leapt since Spring after asset value growth failed to keep up with the rate at which bond yields have collapsed.

The current Skyval Index asset, liability and deficit levels of DB pension funds are:

The pensions crisis has engulfed many of the UK's biggest companies in recent years, with the likes of British Airways owner IAG, BT, and Sainsbury's all rushing to try and stem their gushing deficits.

PwC has found that allowing longer periods to repair companies pensions' deficits could reduce the strain on the economy.

While pension deficits are large compared to overall GDP, the accountancy giant thinks having sensible deficit repair periods can help avoid undue strain on economic growth.

And that for some pension funds, not tackling volatility of deficits could mean missing practicalities of their obligations and could be putting security for savers at risk.

Raj Mody, partner and PwC’s global head of pensions, said:

For some pension funds, it may not matter – the volatility is only there if the situation is monitored frequently and if the measurement method you choose to use tracks volatile market indicators. Most people’s heart rates will go up and down during the day, but that doesn’t mean there’s always an underlying problem. But for other pension funds, the volatility will be an indication of potential trouble.

For example, if asset portfolios are not structured to meet pension benefit payment commitments as they fall due, then pension funds may become a forced seller of assets at a bad time. Or they are storing up trouble for the future without realising it now – like going on a car journey without enough petrol where everything seems fine until you run out of fuel in the middle of the motorway.