The Pension Protection Fund's (PPF) 7800 Index for May painted a broadly positive picture of defined benefit (DB) schemes, as the aggregate surplus of the 4,969 schemes in the PPF 7800 Index increased by £18.6bn, rising from £202.5bn to £221.1bn.

The index showed a 2.8 percentage point increase in the funding ratio, reaching 125.6 per cent, while just over seven in 10 (71.8 per cent) of all schemes were in surplus, or 3,569 in total.

Commenting on the report, PPF chief actuary, Shalin Bhagwan, said: “Global government bond yields rose during May with heightened concerns around whether markets can absorb heavy government borrowing over the coming years, driven by the US budget starting to pass through Congress and dislocations in Japanese government bond markets. This caused DB schemes’ asset and liability values to fall.”

Bhagwan added that a rebound in equity markets following April’s US tariff-related lows had “partly offset the fall in the value of bond assets, meaning that funding levels of PPF-eligible scheme improved.”

This month’s data had particular significance, coming in the wake of the government’s Pension Scheme Bill, which Work and Pensions secretary Liz Kendall said was: “about securing better value for savers’ pensions and driving long-term investment in British businesses to boost economic growth in our country.” The bill aims to increase flexibility for DB pension schemes to release surplus funds.

Commenting on the index, Gallagher’s managing director, UK wealth consulting, Vishal Makkar, said: “The UK’s network of DB schemes is in robust shape, and it will likely become an increasingly central pillar in the nation’s economic life, especially as the Pensions Scheme Bill makes its way through Parliament.”

Makkar added that new details in the bill – including a clause encouraging Local Government Pensions Schemes (LGPS) funds and pools to further consolidate their assets, on the pathway to building new DB superfunds – merited attention.

“This aims to open the doors for new investment into essential infrastructure projects, such as roads and new builds,” he said. “However, what is vital is that members are protected, and that any investment is scrutinised to the highest standard of fiscal responsibility.”

He added: “The bill also contains proposals to allow DB pension funds to release surplus back to the sponsors, without being fully insured beforehand.” But, he warned: “Trustees must ensure members are adequately protected and that any possible risk is analysed fully.”

Nonetheless, Broadstone’s senior actuarial director, Jaime Norman, said: “It is pleasing that despite continued volatility in global markets, pension scheme funding remains resilient posting notable gains through May.”

Norman added: “The continued strength of funding could see sponsors rushing to discuss with trustees about the best route forward to release surpluses, to enable greater business investment. The increased flexibility from the Pension Schemes Bill, alongside new guidance from the Regulator, broadens the options for well-funded schemes.”

As the bill’s progress continues over the coming months, Makkar said: “The onus is on trustees to keep scheme members well-informed on the nill and what its final form could mean for their finances. In an ever-changing economic climate, clear and transparent communication is a top priority.”

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