Aggregate DB pension surplus rises by over £20bn in August

The aggregate surplus of UK defined benefit (DB) pension schemes increased by £20.8bn during August to reach £83.2bn, according to the Pension Protection Fund (PPF).

The funding ratio of the 5,318 schemes in the PPF 7800 Index increased from 103.5 per cent at the end of July to 104.7 per cent.

Total assets increased from £1,849.7bn to £1,856.3bn during the month, while liabilities fell from £1,787.3bn to £1,773.1bn.

According to the PPF, there were 2,483 schemes in deficit and 2,835 schemes in surplus.

The aggregate deficit of the schemes in deficit at the end of August 2021 was £130.2bn, down from £142.2bn.

Commenting on the figures, PPF chief finance officer and chief actuary, Lisa McCrory, said: “Our latest 7800 Index shows there’s been a small improvement of £20.8bn in the aggregate funding position for the 5,318 UK DB pension schemes we protect.

“This change was caused by a rise in bond yields coupled with an increase in the value of equities, which saw the funding ratio increase by 1.2 percentage points to 104.7 per cent.
 
“The number of schemes in deficit reduced by 117 to 2,483 in August, and the total shortfall of these schemes fell slightly by £12bn to £130.2bn, highlighting the ongoing risk we’re exposed to.”

Buck head of retirement consulting in the UK, Vishal Makkar, added: “August’s data again showed that the funding position for the DB schemes in the PPF index remains healthy. Despite some movement in yields and asset returns, the aggregate position stayed comfortably in surplus, with a funding ratio of 104.7 per cent.”

However, Makkar warned that there could be “trouble on the horizon” for scheme members and sponsors later this year, as the planned end of a number of government support schemes, including furlough, is imminent and “looks set to coincide with the move into winter that prompted UK-wide lockdowns last year”.

He continued: “While the vaccination landscape is now very different, scheme sponsors will still be keen to avoid any further business disruption and the return of the volatility the markets experienced in 2020. Sponsors in certain sectors may also have concerns about their supply chains, as stories of empty shelves at UK supermarkets and a lack of trained lorry drivers continue to emerge.
 
“Any impact on funding levels due to changes to sponsor covenants or investment markets may not be felt for some time yet. Still, scheme trustees should use the autumn well to prepare as best they can for any potential impact on their members or sponsors.”

This rise in surplus in August follows a £36.6bn decrease in July.

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