Pension funding levels fall, amid market volatility driven by the banking crisis
Pension funding levels fall, amid market volatility driven by the banking crisis
04 Apr 2023
- XPS Pensions Group estimates that the aggregate surpluses of UK pension schemes has more than halved over March to £25bn.
- A fall in long-term gilt yields of around 0.3% led to an increase in the value of liabilities, worsening the funding level of schemes.
- Increases in scheme assets over the month, driven by many schemes’ hedged investment strategies, has partially offset these liability increases.
- However, drops in equity markets, caused in part by the high-profile collapse of some banks over the month, has had a detrimental impact on schemes’ overall funding positions.
Across March 2023, UK pension schemes’ funding positions have fallen by c.£43bn against long-term funding targets. Based on assets of £1,477bn and liabilities of £1,452bn, the aggregate funding level of UK pension schemes on a long-term target basis was 102% as of 30 March 2023.
Charlotte Jones, Senior Consultant at XPS Pension Group said: “The significant improvements in funding levels seen throughout 2022 have been partially unwound by falling gilt yields over March, driven by the banking crisis. This shock to the market shows that the volatility seen over 2022 looks set to continue through 2023. Any schemes without significant hedges will have seen plunging funding levels, rewarding those trustees that implemented de-risking investment strategies to lock in stronger funding positions.”
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/