The funding gap in British pensions has ballooned to the highest level on record.
Official figures from the Pension Protection Fund, the government agency that underwrites U.K. pensions, showed that, as of Jan. 31, Britain’s defined benefit pensions expect to have to pay out GBP 367.5 billion more than their assets will produce after the interest paid by U.K. government bonds fell in January.
The record deficit, which is a snapshot of asset values at one moment, is up GBP91.9 billion since the end of 2014, and compares to a much lower total deficit of GBP46.4 billion on the same day in 2014. The gap was accentuated by the sharp downward move in gilt yields in January this year. Pension funds discount their liabilities by the yield they expect to be able to get in the market in order to fund them, so when yields fall, the value of their liabilities rises.
