The aggregate surplus of defined benefit (DB) pension schemes in the UK increased by £5.3bn in May, reversing the reduction in surplus the previous month, the latest figures from the Pension Protection Fund (PPF) have shown.

The PPF’s 7800 Index revealed that the aggregate funding position of DB schemes was £263.8bn at the end of May, up from £258.5bn at the end of April.

This increase was driven by asset growth of £22bn during the month, rising from £1,087.6bn to £1,109.6bn.

However, this was partially offset by liabilities also increasing, from £829.1bn to £845.8bn in May.

Despite the increased funding level, UK DB schemes’ funding ratio remained at 131.2 per cent, as both asset and liability values rose by 2 per cent.

The total deficit of schemes in deficit fell from £20.8bn to £20.4bn over the month.

“During May, market sentiment continued to be shaped by the energy uncertainty from the conflict in the Middle East,” commented PPF chief actuary, Shalin Bhagwan.

“Asset and liability values of the PPF-eligible DB universe increased over the month as bond yields eased slightly.

“Softer data releases and optimism on conflict resolution helped to bring down inflation expectations and reduced market confidence that central banks will tighten policy later in the year.

“At the same time, overseas equity markets continued to perform well, supported by resilient corporate earnings - particularly in the US - and ongoing investor optimism around AI-driven growth.”

Gallagher managing director, Vishal Makkar, said the latest PPF data showed the strength of funding across the DB sector, with many schemes standing up to headwinds despite market volatility, higher inflation expectations and wider credit spreads at the start of the year.

“However, strong funding positions should not be mistaken for a simple endgame,” Makkar stated.

“The pensions market is undergoing one of the most significant periods of change since the introduction of auto-enrolment. The sector is increasingly moving toward a time of managed run-off, and strategic decisions around endgame planning and member security are coming to the fore.

“With options for well-funded schemes expanding, from buy-ins and consolidation to run-on and potential surplus release, strong governance is essential. The Pensions Regulator’s forthcoming guidance on surplus extraction will be closely watched, and schemes should use this time to ensure their governance, investment strategy and endgame planning are fit for the next phase of DB pensions.”

Broadstone senior actuarial director, Jaime Norman, added: “Geopolitical uncertainty remained the dominant market feature through May as the conflict in Iran dragged on despite continued negotiations for a longer-term peace treaty.

“Nonetheless, easing inflation expectations and reduced confidence in interest rate rises from Central Banks supported easing bond yields while equities performed strongly.

“The passing of the Pension Schemes Act opens up further endgame opportunities for pension schemes alongside a busy insurance market as trustees look to secure the best possible outcomes for their members.

“The continued strength in funding levels will only increase the range of available options for trustees and we would expect a busy half-year of de-risking ahead.”

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