The UK Pension Protection Fund (PPF), a state-sponsored entity that guarantees pension payments in the event of financial problems, blamed the shortfall on low government bond yields and the continuing fall in equities.
Pension fund assets overall fell 0.5% in November as equity prices declined, the PPF said; meanwhile, assessed liabilities rose 5.2% due to lower yields on gilts. But since November 2007 - when the UK's defined-benefit pension schemes were collectively £26.1 billion in surplus - most of the damage has been done by the fall in equities; assets have declined 18.7% and liabilities have risen 4% over the past 12 months.
The latest deficit is the largest since the PPF was set up in 2004. Despite the fall into the red, the PPF said last month that it would not change the levy it exacts on participating funds beyond increasing it slightly to keep step with wage rises. The decision was made "to help reduce the burden on levy payers, particularly during the current economic downturn", the PPF said at the time.
The PPF has repeatedly warned that UK pension fund managers are not using derivatives or other methods to hedge their liabilities as part of a liability-driven investment strategy. A PPF study in March this year found only 12.6% of funds were using swaps to hedge interest rate and inflation risks.