Pension deficit remains a stubborn problem, despite a £20bn improvement in September according to PwC’s Skyval Index

Published at 00:01 AM on 30 September 2016

New figures released today from PwC’s Skyval Index show the deficit of the UK’s c.6,000 defined benefit (DB) pension funds improved slightly by £20bn after a volatile month. Despite this, the UK pension schemes’ deficit still stands at £690bn, down from the record high of £710bn last month.

PwC’s Skyval Index, based on the Skyval platform which individual pension funds use, provides an aggregate health check of the UK’s c.6,000 DB pension funds.

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


Notes on the three measures:

  • Funding: the value of liabilities used by pension fund trustees to determine company cash contributions, calculated on a scheme-specific basis for each pension fund between the trustees and sponsor.
  • Accounting: the value of liabilities shown in company accounts, based on discounting future pension obligations using AA-rated corporate bond discount rates, as used by pension accounting standards such as IAS19.
  • Buy-out: the value an insurer would typically place on the fund's liabilities, which depends on prevailing market terms for these kinds of transactions. It is a hypothetical scenario for all pension fund to buy out their total liabilities in one go as there is not enough capital market capacity to support this.

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

“September’s market movements go to show that, layered on top of the long-term challenges which pension funds face, some will also have to deal with the impact of short-term volatility. This can particularly affect funds with larger short-term benefit payments to meet, depending on whether their asset portfolio is properly set up to meet those demands without having to make emergency changes to release cash.

“Although the deficit situation arises from the state of long-term interest rates, pension fund trustees and company sponsors may question why current long-term interest rates matter. After all, pension liabilities depend on inflation and life expectancy, and pension benefits are not calculated with reference to interest rates.

“However, given that company sponsors are under pressure to finance pension funds over a much shorter period than the whole lifetime of the pension fund, then this means there has to be a way to measure the deficit as it stands in current terms.  If long-term returns are forecast to be lower, this can increase the cash demands on company sponsors, to make good the difference in the short term.”

PwC cautions that pension decision-makers do not rely on the reported accounting numbers, cited by many commentators, to inform their management decisions.  Accounting numbers are calculated according to prescribed standards, and are not designed to be tailored to individual pension fund circumstances.  They serve a purpose for historic formal financial reporting in accounts, but are not in isolation a good basis for deciding the best forward strategy for a pension fund's assets and liabilities.

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

“The apparent deficit situation for each pension scheme need not be taken at face value.  Schemes should look again at the most appropriate forecast returns to use, specific to their situation.

“There is a need to be prudent, but it is not in everyone’s interests to be over-prudent. It's like climbing a ladder - there is no point in aiming to climb higher than you need nor trying to climb too fast. If you try and step two rungs at a time you risk missing your footing and falling several rungs. The same could apply for a pension funding targets - it is usually better to aim for the right target and get there in a measured way, as that could lead to a safer outcome sooner."


Notes to editors

Graph for use showing the pension deficit value (year to date)


Raj Mody is available for interview, please contact Felix Ampofo on 020 7213 3646 or [email protected] 

The accounting, funding and buy-out levels are determined by adjusting output from the Pensions Protection Fund’s valuation dataset. 

Figures provided have been estimated by PwC and Skyval based on publicly available data of UK defined benefit pension funds.

About Skyval

Skyval is a pensions platform which trustees, sponsors and all advisers can use for their pension scheme, as a single and confidential tool for their scheme-specific funding, investment, analytics and benchmarking requirements.

The Skyval suite of modules includes Skyval Dashboard, Skyval Monitor, Skyval Choice, Skyval Optimiser, Skyval Accounting and Skyval Insure. Skyval helps pension schemes reduce costs, manage risks and make better decisions faster. Visit, follow @SkyvalOnline or connect to us on LinkedIn


About PwC

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see for further details. © 2016 PwC. All rights reserved

« M&A bounced back strongly in summer, according to PwC analysis | Homepage | EU referendum result has further heightened importance of trust agenda, says PwC’s Kevin Ellis »

  • Contact us
  • +44 (0) 20 7213 1768

Specific and out of hours contacts