UK DB pension surplus continues to rise amid Covid-19 recovery

The aggregate surplus of the UK's defined benefit (DB) pension schemes increased to £94.6bn as at the end of May, compared to a surplus of £53.7bn at the end of April, according to the Pension Protection Fund 7800 Index.

This represents the fourth consecutive month that the aggregate surplus has risen since the index registered a surplus for the first time in almost two years in February, having more than doubled in March.

The calculation used in the index was updated in the past month, with the end of May positioning taking account of the new version (A10) of the actuarial assumptions for s179 valuations, introduced with effect from 1 May 2021.

This resulted in an increase to the funding ratio of 2.8 percentage points, from 103.1 per cent at the end of April 2021 to 105.6 per cent.

Alongside this, total scheme assets rose by 0.2 per cent over the past month to £1,788.3bn, whilst total scheme liabilities decreased by 2.1 per cent over the month to £1,693.7bn.

The aggregate deficit of all schemes in deficit also decreased over the month, falling from £135.8bn at the end of April to £117.8bn at the end of May.

The total surplus of schemes in surplus, meanwhile, increased to £212.4bn, compared to £189.5bn at the end of April 2021.

Furthermore, the number of schemes in surplus also increased over the past month, with 53.9 per cent, around 2,869 schemes, in surplus at the end of May 2021.

Commenting on the results, PPF chief finance officer and chief actuary, Lisa McCrory, said: “As we anticipated, the funding position of our 7800 Index improved in May, with the aggregate surplus of the 5,318 schemes increasing by just over £40bn to £95bn.

“While market conditions were relatively stable, the change was caused by the move to the new A10 s179 assumptions, which resulted in the funding ratio rising by nearly 3 per cent to nearly 106 per cent.

“So far this year we’ve seen an improved position for UK DB schemes, however we remain alert to the continuously changing environment around us."

Buck head of retirement consulting, Vishal Makkar, also highlighted the further rise in total asset value, and the aggregate position of the schemes remaining in surplus, as a reflection of the "optimism" of the financial markets.

“The markets have responded positively as the UK continues to ease lockdown restrictions in line with the government’s Covid roadmap and the country’s immediate economic future remains closely tied to the success of the vaccine rollout,” he stated.

He also warned, however, that there was evidence to suggest that the financial impact of the pandemic is "far from over", noting that the emergence of new virus variants and the potential threat of future waves may yet necessitate a return to stricter lockdown measures.

He added: "While there may then be cause for cautious optimism, it’s important to remember that UK pension schemes, sponsors and members are yet to fully feel the long-term impact of the pandemic or the effects of Brexit.”

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