Hike funding

DB pension surplus increases by £42.8bn; funding ratio at its highest since 2007

The overall surplus in UK defined benefit (DB) pension schemes rose by £42.8bn to £176.4bn in March, the Protection Fund’s 7800 index showed of pensions (PPF).

As of March 31, the funding ratio stood at 111.4%, its highest level since June 2007, compared to 108.4% at the end of February.

The increase in funding levels has been attributed to an increase in bond yields.

The total assets of the 5,215 schemes in the index fell during the month from £1,732.2 billion to £1,721.5 billion.

However, this was more than offset by the fall in liabilities from £1,598.6 billion to £1,545.1 billion over the same period.

There were 3,307 plans in surplus and 1,908 in deficit at the end of March.

The overall deficit of loss-making schemes stood at £62.9bn, down from £83.1bn at the end of February.

Commenting on the update, PPF Chief Financial Officer and Chief Actuary Lisa McCrory said: “Last month the aggregate funded ratio for the universe of plans we protect increased to 111.4%, the highest since June 2007.

“The scheme’s funding levels continue to be affected by rising bond yields which have moved to reflect expectations that the Bank of England’s policy rate will be higher in coming years than it expected. has been over the previous decade.”

Buck UK’s head of pension advice, Vishal Makkar, added: “Funding levels for schemes in the PPF index improved during the month of March as total liabilities fell sharply. With more than 3,300 of the 5,215 plans in the PPF index ending the month with a funding surplus, the thoughts of many administrators may turn to other goals.

“The recent Spring Statement offered no major shake-ups for pension plans, with nothing new in terms of requirements or regulations for trustees. Unfortunately, the Chancellor has also offered little relief when it comes to the current cost-of-living crisis.

“The rising cost of living remains a significant concern for scheme members and an increase in National Insurance contributions could well be an additional issue for those who have not yet reached retirement.

“Rising inflation could also impact most program sponsors and will likely affect the final planning of many programs this year. A combination of inflation and accompanying interest rate hikes could make 2022 will be a challenging year for DB plans as they grapple with a rapidly changing investment landscape. Administrators will need to plan carefully and may wish to speak with a trusted advisor to help them navigate this new environment.