Aggregate DB pension surplus increases to over £200bn

The aggregate surplus of the UK's 5,215 defined benefit (DB) pension schemes is estimated to have increased by £29.8bn over April, the Pension Protection Fund's (PPF) latest 7800 Index has revealed.

As of the end of April, the aggregate surplus stood at £206.2bn, up from £176.4bn at the end of March.

The increase was attributed to an increase in bond yields as a result of rising inflation.

PPF’s update also revealed that the funding ratio increased from 111.4 per cent at the end of March to 114 per cent at the end of April.

Total assets were found to be £1,678bn and total liabilities were £1,471.8bn.

More schemes were found to be in surplus than in the previous month’s findings, rising from 3,307 to 3,458, whilst schemes in deficit declined from 1,908 to 1,757.

The aggregate deficit of the schemes in deficit was found to be £47.8bn, down from £62.9bn at the end of the previous month.

PPF chief finance officer and chief actuary, Lisa McCrory, commented: “Last month’s aggregated funding ratio for the schemes under our protection continued to rise to 114 per cent.

“The increase is mainly due to the ongoing surge in bond yields primarily driven by central banks combatting the rising inflation.

“It’ll be interesting to see what impact the US and UK rate moves will have on the 7800 Index next month when coupled with ongoing COVID lockdowns in China and further heightened economic sanctions on Russia.”

Buck head of retirement consulting, Vishal Makkar, added: “Funding levels for the schemes in the PPF Index improved over the course of a turbulent April, reaching an aggregate surplus of over £200bn for the first time ever. This left the funding ratio for the 5,215 schemes at 114 per cent at the end of the month.

“News from the Bank of England’s Monetary Policy Committee has dominated recent press headlines and will certainly also have caught the attention of DB scheme trustees.

“The MPC voted to raise the base rate to 1 per cent at the start of May and alongside rising longer term gilt yields this may prove beneficial for some schemes' funding positions.

“Of more concern, however, are the rising inflation predictions. Inflation currently sits at 7 per cent, though the Bank of England says that it could reach 10 per cent later this year and that it might take years for the inflationary pressure to subside.

“This could potentially impact a range of scheme sponsors, while also upending the investment landscape. Trustees should evaluate how well their current investment arrangements address these shifting risk dynamics as a priority.”

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