Pension scheme surpluses rise to reach £53bn with improvements over April

Pension scheme surpluses rise to reach £53bn with improvements over April

05 May 2023

• XPS Pensions Group estimates that UK DB pension surpluses hit £53bn at the end of April, partially reversing declines seen in March.
• A rise in long-term gilt yields of around 0.2% led to a decrease in the value of liabilities, improving the funding level of schemes.
• Meanwhile aggregate scheme assets fell over the month, driven by schemes’ hedged investment strategies.

Across April 2023, UK pension schemes’ funding positions have improved by c.£35bn against long-term funding targets. Based on assets of £1,442bn and liabilities of £1,389bn, the aggregate funding level of UK pension schemes on a long-term target basis was 104% as of 28 April 2023.

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As schemes’ funding levels improve, many are looking to pursue risk settlement options and are selling illiquid private market assets to put them in the best possible position to do so. At the same time, highly hedged schemes are also selling their illiquid allocations to ensure they have sufficient liquidity to support their hedging portfolios, given the recent strain within the LDI market. This is leading to a situation in which some private assets are trading at discounts of up to 20%.

Felix Currell, Senior Consultant at XPS Pensions Group said: “The discounts we’re currently seeing in the market for private assets presents opportunities for schemes that can tolerate some illiquidity. However, not all private markets assets represent good value and trustees must tread carefully and consider any allocation in the wider context of 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/services/xps-pensions/xps-dbuk-funding-watch/