Defined benefit pension scheme funding remains robust despite challenging economic climate
Defined benefit pension scheme funding remains robust despite challenging economic climate
07 Aug 2023
- XPS Pensions Group estimates that the aggregate DB funding level increased to 111% over the month of July.
- The aggregate surplus of UK pension schemes now stands at approximately £145bn.
- Long-term gilt yields finished the month where they started, with the announcement of unexpectedly low inflation figures during July reversing the gilt yield rises experienced at the start of the month. The net effect of this is that aggregate scheme liabilities are at a similar level to the previous month.
- However, aggregate scheme assets were up over the month, leading to a slight increase in the large surpluses many schemes have recently built up.
Across July 2023, UK pension schemes’ funding positions have risen by c.£12bn against long-term funding targets. Based on assets of £1,430bn and liabilities of £1,285bn, the aggregate funding level of UK pension schemes on a long-term target basis was 111% as of 31 July 2023.
Charlotte Jones, Senior Consultant at XPS Pensions Group said: “Despite the UK facing significant economic challenges, defined benefit pension schemes have remained robust and aggregate funding has increased. Long-term gilt yields have fallen by around 0.13% since the encouraging inflation announcement in the middle of July, with expectations of future interest rate rises being pared back. The Bank of England’s decision to raise interest rates by 0.25% last week confirms this belief, with many analysts previously expecting a larger, 0.5% rise would be required. However, given the uncertain nature of future inflation and interest rates, schemes should consider their hedging levels to ensure any positive funding positions are locked-in.”
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/