DB pension surpluses continue to tick upward

DB pension surpluses continue to tick upward

07 May 2024

• XPS Pensions Group estimates that the aggregate surplus of UK pension schemes on long-term targets remains extremely positive at approximately £178bn.
• A rise in long-term gilt yields of 0.4% led to a decrease in the value of liabilities, increasing scheme funding levels.
• This fall was offset by aggregate scheme assets decreasing over April 2024, driven by schemes’ hedging strategies, as well as slight increases to long-term inflation expectations increasing liability values.

Over April 2024, UK pension schemes’ funding positions rose by £19bn, relative to long-term funding targets, new XPS Pensions Group research shows. Based on assets of £1,430bn and liabilities of £1,252bn, the aggregate funding level of UK pension schemes on a long-term target basis remains extremely positive, at 114% of the long-term value of liabilities, as of 30 April 2024.

In April, The Pensions Regulator published its Annual Funding Statement summarising the impacts of recent market changes on funding and investment allocations. It outlined how many strategies could now be reassessed to target more optimistic longer-term goals, such as buyout, consolidation or run-on.

Danny Vassiliades, Partner at XPS Pensions Group said: “With high interest rates reducing scheme liabilities, aggregate pension scheme surpluses continue to approach record levels. This optimistic outlook supports The Pension Regulator’s recent Funding Statement which expects half of all DB pension schemes to be fully buy-out funded.

With a new funding code due to come into force from September 2024, it is now more important than ever for trustees and sponsors to take a step back and assess what the right strategy path is for their scheme.”

Notes:

XPS DB:UK tracks the funding position of UK defined benefit (DB) pension schemes on a long-term target basis and allows real-time monitoring of changes and analysis of the reasons behind any movement.

XPS DB:UK Funding Watch monitors the combined deficit and funding level of UK defined benefit (DB) pension schemes (i.e. all registrable schemes - including hybrids) on a long-term target basis using a discount rate of Gilts + 0.5%. It combines XPS’s market leading Member Analytics and the award-winning journey planning tool, Radar, enabling real-time monitoring of changes and analysis of the reasons behind any movement.

An online version of XPS DB:UK is available here:

https://www.xpsgroup.com/what-we-do/technology-and-trackers/xps-dbuk-tracker/