Pension Deficits (and Surpluses) – where do you stand on #FABI ?

Rather than kick off with  the FAB index this month, I thought to promote the response it’s publication this morning has received.

Paul Lewis


On the one hand there is Paul Lewis, who (for me) stands  for common sense and the ordinary person.

On the other hand there is John Ralfe, who (for me) stands up for neo-liberal economics and “risk-free pensions”.

John Ralfe


There is here a polarity of opinions that pretty well defines the debate on pension affordability, it touches on the way that schemes like Royal Mail, USS are organised and the benefits they provide.

If this presents the argument at its most polarised, here are the fifty shades of irritation that follow in its wake.





So after all that – here is the First Actuarial FAB index for May

Over the month to 31 May 2018, First Actuarial’s Best estimate (FAB) Index improved, with the surplus in the UK’s 6,000 defined benefit (DB) pension schemes increasing from £361bn to £379bn.



The deficit on the PPF 7800 Index deteriorated over May 2018 from £81.7bn to £94.0bn.

These are the underlying numbers used to calculate the FAB Index.

FAB Index over the last 3 months Assets Liabilities Surplus Funding Ratio ‘Breakeven’ (real) investment return
31 May 2018 £1,611bn £1,232bn £379bn 131% -0.9% pa
30 April 2018 £1,577bn £1,216bn £361bn 130% -0.8% pa
31 March 2018 £1,566bn £1,215bn £351bn 129% -0.8% pa

The overall investment return required for the UK’s 6,000 DB pension schemes to be 100% funded on a best estimate basis – the so called ‘breakeven’ (real) investment return – has fallen to minus 0.9% pa. That means the schemes need an overall actual (nominal) return of 2.6% pa for the assets to meet the liabilities.

The assumptions underlying the FAB Index are shown below:

Assumptions Expected future inflation (RPI) Expected future inflation (CPI) Weighted-average investment return
31 May 2018 3.5% pa 2.5% pa 4.0% pa
30 April 2018 3.5% pa 2.5% pa 4.1% pa
31 March 2018 3.5% pa 2.5% pa 4.1% pa


The FAB Index is calculated using publicly available data underlying the PPF 7800 Index which aggregates the funding position of 5,588 UK DB pension schemes on a section 179 basis, together with data taken from The Purple Book, jointly published by the PPF and the Pensions Regulator.


The FAB Index is updated on a monthly basis, providing a comparator measure of the financial position of UK DB pension schemes.

Fab index may 18 5




About First Actuarial

First Actuarial is a consultancy providing pension scheme administration, actuarial, investment and consultancy services to a wide range of clients across the UK.

We advise a mixture of open and closed defined benefit schemes with our clients concentrated in the small to medium end of the pension scheme market. Our clients range across a number of sectors including manufacturing, financial services, not for profit organisations and those providing services previously in the public sector.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Pension Deficits (and Surpluses) – where do you stand on #FABI ?

  1. George Kirrin says:

    The FABI may show an estimate of how much “prudence” is in the other measures (such as in the James Phillips chart).

    Should prudence be constant, or variable over the cycle? I tend to see prudence as being countercylical – we need more when markets are bubbling up, and less when they’re falling down.

  2. henry tapper says:

    That’s a great observation – where in the cycle do you think we are George?

    • George Kirrin says:

      Expected returns would suggest we’re nearer the top in all of equities, rental properties and bonds, if the next five to seven years are expecting to see lower returns and higher interest rates.

      That’s easy to say, less easy to execute.

      There will be equities which can grow earnings from here, existing properties which can be re-rated upwards in terms of rents and capital values, but it’s harder to see the case for bonds when gilts are near the floor and corporate bond margins above are relatively low.

      So, there’s a case for more prudence now than before, but not necessarily as much prudence as the Pensions Regulator seems to be asserting, while AA-bond accounting rates seem to be overstating long-term liability costs.

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