Large DB pension surpluses maintained as UK Government announces reforms

Large DB pension surpluses maintained as UK Government announces reforms

05 Dec 2023

• XPS Pensions Group estimates that the aggregate surplus of UK pension schemes on long-term targets now stands at approximately £168bn.
• A fall in long-term gilt yields of around 0.4% led to an increase in the value of liabilities, reducing scheme funding levels.
• This rise was partially offset by aggregate scheme assets increasing in November, driven by schemes’ hedging strategies and positive growth returns.

DB pension surpluses remained relatively stable at an elevated level across the months of November, XPS Pensions Group has found.

Overall, across November 2023, UK pension schemes’ funding positions have fallen by c.£14bn against long-term funding targets. Despite this fall, based on assets of £1,445bn and liabilities of £1,277bn, the aggregate funding level of UK pension schemes on a long-term target basis remains extremely positive and was 113% of the long-term value of liabilities as of 29 November 2023.

This strong position will also be replicated across schemes’ other funding measures, and off the back of the Chancellor’s Autumn Statement, many pension scheme sponsors will be particularly interested in any potential surpluses and how this may impact schemes’ long-term objectives.

Danny Vassiliades, Partner at XPS Pensions Group said: “With pension scheme surpluses at near record levels, the Chancellor’s announcement that surplus refund taxation will fall from 35% to 25% is welcome news to scheme sponsors looking to run-on their schemes.

The Government is expected to launch a public consultation to develop these ideas, but trustees and sponsors of DB pension schemes should consider whether these proposals could impact their long-term targets and if running-on schemes will provide the most benefit to members and sponsors.”

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/