DB pension surplus continues to grow

The aggregate defined benefit (DB) pension surplus increased by £17.1bn last month, standing at £146.4bn as of the end of January 2022, according to the Pension Protection Fund (PPF) 7800 Index.

The funding ratio also increased, rising from 107.7 per cent at the end of December 2021 to 109.1 per cent as of the end of January 2022.

The index showed that whilst the total assets fell over the month from £1,818bn to £1,757bn, this was more than offset by a fall in total liabilities from £1,688.7bn to £1,610.6bn.

The number of schemes in deficit also fell slightly from 2,152 to 2,094, in turn pushing the aggregate deficit of the schemes in deficit at the end of January 2022 down to £80.9bn, compared to £97bn at the end of December 2021.

PPF chief finance officer and chief actuary, Lisa McCrory, commented: “Despite last month’s fall in global equities, the ongoing rise in bond yields saw the aggregate surplus of the 5,215 schemes we protect increase by £17.1bn to £146.4bn.

“This improvement in scheme funding saw fewer schemes in deficit with a reduced aggregate deficit of £80.9bn, a positive trend, which scheme trustees will undoubtedly welcome as they consider their longer-term plans.”

Adding to this, Buck UK head of retirement consulting, Vishal Makkar, suggested that "the stage could be set for further falls in liability values this year, following the recent decision from the Bank of England to raise the base rate by 0.25 per cent".

"The latest move from the bank has already prompted gilt yields to increase and there could well be further base rate rises on the horizon," he continued.

“Four of the Bank’s nine Monetary Policy Committee members reportedly wanted to raise rates to 0.75 per cent in February and the committee may yet vote to do so when it meets again in the middle of March.

"Trustees and scheme sponsors will need to ensure their planning accounts for a higher rate environment, as well as the potential for ongoing inflationary pressure.”

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