UK DB pension schemes fully funded on long-term targets

UK defined benefit (DB) pension schemes have become 100 per cent funded on a long-term target basis for the first time since aggregated records began, according to XPS Pensions Group's funding tracker.

The XPS DB:UK tracker revealed that the aggregate funding level of UK pension schemes on a long-term target basis was 100.2 per cent as of 31 August 2022, based on assets of £1,623bn and liabilities of £1,620bn.

According to the tracker, DB scheme funding levels against long-term targets fell by a further £69bn over the month to 31 August 2022, shifting from a £66bn deficit on 31 July to a £3bn surplus.

The funding improvements were attributed primarily to rising gilt yields during August, partially offset by a small rise in long-term expectations of inflation.

XPS Pensions pointed out that this added to the improvements in long-term positions that have been seen over 2022, now in excess of £330bn for the year.

In addition to this, the group noted that while equity markets struggled over August, performance was pushed back into positive territory for many UK pension schemes due to depreciation of sterling over the month.

Furthermore, although matching assets continued to fall alongside liability values, XPS clarified that this remained beneficial for schemes that are not fully hedged, particularly when looking at longer-term assumptions.

In light of the improvements, XPS Pensions Group actuary, Tom Birkin, suggested that "now
is an excellent opportunity" for schemes to ‘lock in’ these significant gains and to think about what the ultimate end-game for the scheme might be

“The DWP launched its long-awaited consultation on DB funding rules and long-term funding objectives at the end of July," he continued.

“However, with the average UK pension scheme now fully funded on a long-term basis, there may not be as many schemes having to take drastic action as a result of the new regulations as once thought.

“This is good news for pension scheme members as securing members benefits is within reach for more schemes than ever before.”

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