UK DB pension deficits fall £61bn amid rising gilt yields

UK defined benefit (DB) pension scheme deficits against long-term funding targets fell by £61bn to £256bn in March 2022, according to XPS Pension's DB:UK Funding Tracker.

This was based on assets of £1,751bn and liabilities of £2,007bn, resulting in an average funding level for UK pension schemes on a long-term target basis of 87 per cent, as at 30 March 2022.

As a result, XPS suggested that the average pension scheme would need an additional £25,000 per member to ensure it can pay their pensions into the long term, down from £31,000 in February.

XPS attributed the “significant improvement” in funding levels in March to a sharp rise in gilt yields that reduced liabilities, noting that despite significant increases in short-term inflation, long-term inflation also fell slightly over the month helping to reduce deficits further.

XPS senior consultant, Charlotte Jones, commented: “Gilt yields have reached their highest levels in the last three years due to commodity prices pushing up short term inflation rates.

“This is good news for pension schemes, which should review any de-risking opportunities, secure their liabilities and lock in any reduction in deficits by reducing risk in their investment strategy or taking advantage of the recent improvements in buyout pricing.”

However, despite recent funding improvements, XPS also recently warned that UK DB pension schemes' progress in achieving long-term funding targets may have been set back by as much as 10 years following Covid-19.

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