The aggregate surplus of defined benefit (DB) pension schemes fell by £5.3bn in April to £258.5bn, according to the Pension Protection Fund's (PPF) 7800 Index.

The latest update to the index, which reflected the scheme valuation data submitted to The Pensions Regulator as part of the schemes’ annual returns, showed that the aggregate surplus declined, while the funding ratio dipped from 131.4 per cent to 131.2 per cent.

Total scheme assets decreased by 1.6 per cent to £1.09trn, while liabilities fell by 1.4 per cent to £829.1bn.

Despite the monthly decline, the overall funding position remained significantly stronger than a year earlier, when the aggregate surplus stood at £205.2bn, and the funding ratio was 123.6 per cent.

Commenting on the results, PPF chief actuary, Shalin Bhagwan, said market conditions remained challenging throughout April.

“Persistent inflation pressures and elevated energy prices kept global bond yields high,” he stated.

“Expectations of further central bank tightening continued to build, with UK gilt yields rising as investors reassessed the path of monetary policy.

"Against this backdrop, risk asset performance was mixed, and bond markets remained under pressure.”

Bhagwan added that the funding ratio softened as scheme assets and liabilities both declined during the month, although he stressed that funding levels remained “robust”, supported by higher discount rates.

The PPF data showed that the number of schemes in deficit increased slightly from 1,023 to 1,048 during April, while the aggregate deficit of schemes rose from £18.9bn to £20.8bn.

Meanwhile, UK gilt yields continued to rise during the month, with 15-year fixed-interest gilt yields increasing by 13 basis points and 20-year yields rising by 14 basis points.

Commenting on the findings, Broadstone actuarial director, Sarah Elwine, warned that continued market volatility and inflation expectations were contributing to elevated bond yields.

“With the conflict in Iran seeming unlikely to end imminently and domestic political uncertainty lingering in the UK, trustees must once more deal with a challenging macro environment,” she said.

Elwine noted that schemes without a matched investment strategy in place could be more exposed to market conditions, adding that trustees and scheme managers should continue monitoring investment strategies to support long-term objectives and member outcomes.

However, she acknowledged that funding levels remained healthy overall, with aggregate surplus levels significantly higher than last year.

“Alongside the passing of the Pension Schemes Act, it highlights the fact that many trustees still have optionality and the insurance market continues to quote for new business for schemes looking to secure their members’ benefits,” she added.

Gallagher managing director of UK wealth consulting, Vishal Makkar, also pointed to continued uncertainty around inflation and interest rates.

“Monthly movements are to be expected, but recent volatility is a reminder to keep a close eye on funding and investment risks,” he said.

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