The aggregate surplus of defined benefit (DB) pension schemes in the UK increased by £10bn in October to £30bn, according to the PwC Pension Funding Index.

During the month, asset values rose by £10bn to £1,820bn, while liability values remained at £1,790bn.

UK DB schemes have now been in surplus on aggregate for nine months in a row.

The funding ratio also increased during October, rising by 1 percentage point to 102 per cent.

PwC’s Pension Funding Index measures the aggregate DB deficit based on schemes’ own measures.

“As funding positions continue to improve, pension schemes should make sure that their asset strategy will stand them in good stead in the future,” commented PwC global head of pensions, Raj Mody.

“For example, climate risk poses a threat to future returns on certain types of investment. In light of COP26 and climate-related disclosures, there is ever increasing focus in this area.

“More sponsors and pension fund trustees are looking at how they can target net zero for their pension schemes as well as in their business operations. Inevitably given the practical complications and supply constraints, only a minority have addressed all the issues.”

PwC pensions actuary, Laura Treece, echoed these climate-related concerns: “There are complex issues for trustees to work through in making decisions about how to manage climate risk within their scheme investment strategy. But if the industry doesn’t collectively take action, economic growth and future returns for every pension fund are at stake.

“Not only that, schemes could miss out on opportunities to optimise returns - sustainable assets are well placed to provide future real returns as the UK works towards net zero.

"Those pension funds looking to transfer to an insurance company might also find that ‘green’ assets are more desirable, which may help them secure members’ benefits more quickly.”

PwC also measures schemes’ funding levels using its Adjusted Funding Index, which incorporates strategic changes available for “most” pension schemes, including a move away from gilt investments to higher-return, cash-flow generative assets, along with a new approach for funding long-term potential life expectancy improvements that are yet to happen.

The adjusted index estimated that the surplus increased by £10bn during October to £200bn, with liabilities remaining at £1,620bn and the funding ratio stable at 112 per cent.

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