UK Pension Schemes on track for full funding as deficits reduce by almost 70% in June

• UK pension scheme deficits against long-term funding targets fell by £56bn over the month to 29 June 2022
• Rising gilt yields coupled with a fall in long term inflation expectations are the reasons behind the improvement
• DB:UK estimates that it could currently take less than 1 year¹ to reach long-term targets under the proposed new funding code rules

Deficits of UK pension schemes have decreased by c.£56bn over the month to 29 June 2022 against long-term funding targets, an analysis from XPS Pension Group’s DB:UK funding tracker has revealed. Based on assets of £1,583bn and liabilities of £1,609bn, the average funding level of UK pension schemes on a long-term target basis was 98% as of 29 June 2022.

Drivers of the change

The improvement in funding levels over June adds to the c.£250bn reduction in deficits we’ve seen since the start of the year and now UK pension schemes are quickly approaching full funding on a long-term target basis. Liabilities fell due to a combination of rises in gilt yields and a fall in inflation expectations. These gains were offset by schemes’ hedging assets falling in tandem.

The good news that Schemes are hurtling towards their long-term targets should prompt trustees and companies to review the next steps for their schemes. With some schemes’ seeing vast improvements in their funding positions, we are seeing preparations for buyout, reviewing hedging and investment strategies, or even revisiting the deficit recovery payments making their way onto schemes’ agendas.

Charlotte Jones
Senior Consultant at XPS Pensions Group

They must also not forget about the scheme members in this high inflationary environment who are likely to need more support and education from their schemes.’