The aggregate surplus of defined benefit (DB) pension schemes rose from £230.5bn to £241.1bn in July after large gains in equity markets drove some global stock markets to all-time highs, data from the Pension Protection Fund (PPF) has revealed. 

The PPF's 7800 Index showed that the average funding ratio had also increased from 126.2 per cent in June to 127.7 per cent in July. 

This was driven by a 0.2 per cent increase in total scheme assets to £1,112.0bn, combined with a 1 per cent fall in liabilities to £870.9bn. 

In addition to this, the deficit of schemes in deficit fell by £0.6bn from £28.7bn to £28.1bn over the past month, whilst the number of schemes in surplus rose to 3,684, representing nearly three-quarters (74.1 per cent) of all schemes in the universe.

PPF head of actuarial financial management, Aaron Pang, explained that long-dated government bond yields moved higher during July in response to global fiscal policy decisions, leading to a fall in estimated liability values across the PPF-eligible DB universe.

"Meanwhile, despite the accompanying slight reduction in bond values, estimated asset values rose overall, owing to large gains in equity markets," Pang continued. "This followed a series of trade deal announcements contributing to all-time highs in global stock markets."

But whilst these improvements have solidified the strong funding positions held by many DB schemes, industry experts have warned that the wider pensions landscape is continuing to change, which could have consequences for DB endgame strategies.

"The Pension Schemes Bill and related regulatory initiatives - including reviews of value for money in defined contribution (DC) schemes and commission-based advice models - are pushing trustees and sponsors to rethink long-term strategy," Gallagher managing director, UK wealth consulting, Vishal Makkar, said.

"With the state pension age rising to 67 and concerns over retirement adequacy growing, particularly for those relying on auto-enrolment alone, private pensions are more important than ever.

“Trustees and sponsors should use the current funding strength not just to consider further de-risking, but to try and secure better member outcomes and address wider challenges in the retirement system.”

This was echoed by Broadstone actuarial director, Sarah Elwine, who suggested that the industry is already seeing growing evidence of accelerating momentum in the bulk purchase annuity market with several jumbo deals announced recently.
 
However, Elwine argued that, despite the "cloudy outlook" surrounding the UK economy, it is clear that pension scheme trustees are likely to have good variety of options to secure their members’ benefits.

"Whether that is through the insurance market or exploring the possibility of run-on, trustees should continue monitor their funding position and investment strategies to ensure they can achieve their long-term objectives," she stated.

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