The coverage ratio of UK defined benefit schemes was little changed in August compared to the prior month. Liabilities increased on average during the month yet so did assets keeping the ratio at about 83%. Liabilities increased 5.6% from the prior month mainly due to lower gilt rates, reports the Pension Protection Fund (PPF). Conversely, assets increased 3.3% on average due to the ongoing rally in both global and UK equities.

Year to date, the coverage ratio has fluctuated between a low of 76% (March) and 83%. Over the past year, falling equity prices and bond yields have led to an overall worsening of the coverage ratio of schemes in the sample universe. Meanwhile, the number of schemes in deficit in August stood at 6,304, up from 6,265 schemes in the prior month, representing 85% of total DB schemes in the sample. There were 1,904 schemes in surplus in August 2008 compared to 1,077 today (representing 15% of schemes), according to the PPF.

The PPF 7800 sample universe covers 7,381 schemes. The fall in the number of eligible schemes from 7,744 a year ago reflects a number of factors such as mergers and schemes buying out benefits from insurance companies. The following rules of thumb are used to measure changes in asset prices on an s179 basis: a 7.5% rise in equity markets increases assets by 4% while a 3bp rise in gilts reduces scheme assets 1% and shrinks liabilities by 6%. Falling gilt rates in August had the opposite effect, sending liabilities higher.

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