UK defined benefit (DB) pension schemes have remained resilient despite market volatility, with the Pension Protection Fund’s (PPF) latest 7800 Index reporting an estimated aggregate surplus of £238.9bn at the end of August.

Even though surplus levels decreased by £2.2bn from £241.1bn the previous month, Gallagher UK Wealth Consulting managing director, Vishal Makkar, said schemes have shown resilience.

“Although today’s PPF 7800 Index shows a slight dip in overall aggregate funding, the UK’s DB schemes are still in a healthy surplus, currently standing at £238.9bn, partly due to more volatile asset performance," he stated.

“Nevertheless, overall market conditions have maintained strong funding levels across most DB schemes throughout August, as markets continue to price in persistent inflation and elevated government borrowing.”

The index also estimated total scheme liabilities at £851.6bn, down from £870.9bn last month.

PPF chief actuary, Shalin Bhagwan, attributed the 2.2 per cent drop in liabilities to a surge in yields on long-dated gilts, which reached highs not seen since the late 1990s.

Bhagwan noted that the corresponding drop in gilt prices was tempered by steady improvements in equity markets, resulting in a 1.9 per cent decline in estimated scheme assets, from £1,112bn the previous month to £1,090.5bn in August.

The PPF’s estimate also found that the funding ratio rose to 128.1 per cent, marking an increase of 0.4 percentage points from July’s 127.7 per cent.

Standard Life business development manager, Charlotte Fletcher, said the slight rise reflects a combination of falling liabilities from higher gilt yields and modest gains in equity markets.

She said: “While the sharp rise in gilt yields over 2022 and 2023 drove improvements in scheme funding positions, yields have continued to rise gradually, contributing to a modest boost in funding levels.

"With funding positions stabilised at elevated levels, many trustees are now weighing endgame strategies, focusing on securing member benefits through bulk purchase annuities.”

This was echoed by Broadstone senior actuarial director, Jaime Norman, who suggested that "heading into the busier second half of the year for pension scheme de-risking, many pension schemes will be in a strong position to approach what is a competitive insurance market".

“However, growing insurer capacity and widening options around run-on and access to surplus should mean that pension scheme trustees have a wide variety of options to secure their members’ benefits," Norman continued.

“Market volatility remains present so trustees must continue to monitor their funding position and investment strategies to ensure they can achieve their long-term objectives.”

Meanwhile, the deficit of schemes in deficit rose £2.2bn to £30.3bn, while the number of schemes in the PPF universe remained unchanged at 4,969.

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