DB surpluses increase by £36bn as Bank avoids base rate cuts

DB surpluses increase by £36bn as Bank avoids base rate cuts

01 Feb 2024

• XPS Pensions Group estimates that the aggregate surplus of UK pension schemes on long-term targets now stands at approximately £149bn.
• A rise in long-term gilt yields of around 0.5% led to a decrease in the value of liabilities, increasing scheme funding levels.
• This rise was partially offset by aggregate scheme assets decreasing over the month, driven by schemes’ hedging strategies.

Over January 2024, UK pension schemes’ funding positions improved by c.£36bn against long-term funding targets, new XPS Pensions Group research shows. Based on assets of £1,416bn and liabilities of £1,267bn, the aggregate funding level of UK pension schemes on a long-term target basis remains extremely positive, at 112% of the long-term value of liabilities, as of 26 January 2024.

​​​​​​Danny Vassiliades, Partner at XPS Pensions Group said: “Aggregate pension scheme surpluses increased significantly over January, with higher-than-expected December inflation figures tempering expectations about when the Bank of England will begin highly-anticipated rate cuts. With upcoming cuts in mind, schemes should be well-hedged to protect against increases in the value of their liabilities.

The Bank’s announcement today to maintain interest rates at 5.25% was widely expected and the Bank stressed that, despite hopes of falling inflation, it is too early to consider lowering rates. With significant market interest in predicting the first of the expected rate cuts, the volatility that many pension schemes have experienced over the past few years is likely to persist.”

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/services/xps-pensions/xps-dbuk-funding-watch/