The coverage ratio of UK defined benefit schemes improved to 85% in September from 83% in the prior month. Liabilities were slightly down during the month while total scheme assets increased to £858.8bn, representing an increase of 2.7% over the last month and 6.6% over the year, according to the Pension Protection Fund (PPF).

Somewhat higher gilt yields led to a decrease in liabilities of 0.5%. During the same period the FTSE All Share Index rose by 4.5% over September. Over the year to September 2009, the FTSE All Share Index climbed 6.1% and 10-year gilt yields were down by 95bps. However, rising equity markets have been more than offset by falling bond yields, leading to an over worsening of the funding position. Lower bond yields resulted in a 12.1% increase in aggregate liabilities while stronger equity prices have increased assets by 3.5% over the year. Year to date, the coverage ratio has fluctuated between a low of 76% in March and 85%.

total assets less liabilities/ source: ppf

The total deficit of schemes in September 2009 is estimated to have improved to £174.9bn from £194.6bn the previous month. The number of schemes in deficit stood at 6,174 compared to 6,304 in August, representing 84% of the total defined benefit schemes in the sample, according to the PPF. Meanwhile, the surplus of all schemes increased to £25.9bn from £21.4bn. In September 2008, the surplus of all schemes stood at £46.2bn. The number of schemes in surplus increased to 1,204 from 1,077 in August. There were 1,793 schemes in surplus in September 2008.

estimated scheme surplus / source: 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 by 1% and shrinks liabilities by 6%.

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