UK’s schemes funding continues to improve, with the aggregate surplus of the 5,215 schemes in the PPF 7800 Index rising by £59.5bn to £313.8bn, according to The Pension Protection Fund (PPF).
According to the September PPF 7800 report, the surplus is at its largest level since the PPF 7800 began disclosing data.
The funding ratio grew to 125.1 per cent from 118.2 per cent at the end of July 2022. There were £1,565.0bn in total assets and £1,251.2bn in total liabilities. There were 4,081 projects that were in excess and 1,134 that were in deficit.
At the end of August 2022, the total deficit of the deficit-schemes was £14.3bn, down from £29.8bn at the end of July 2022.
PPF chief finance officer and chief actuary Lisa McCrory says: “The unprecedented rise in bond yields last month saw the funding position for the 5,215 schemes under our protection increase by £59.5bn to £313.8bn. This was mainly a result of the Bank of England’s forceful approach to tackling inflation, their plans to sell off gilt holdings, and expectations that the new Prime Minister’s programme of tax cuts and energy market intervention will cause a material increase in the UK’s borrowing.
“We’ve not seen an increase in bond yields like this since January 2009, and the overall increase since November 2021 has more than doubled the largest previous increase in yields since the Bank of England gained independence in 1998.
“While the near-term economic outlook is highly uncertain, the PPF remains in a strong financial position and is well positioned to weather this period of uncertainty irrespective of how scheme funding and insolvency rates evolve in the future.”
Broadstone senior actuarial director Jaime Norman says: “Scheme funding continues to improve, driven by rising gilt yields and falls in liability values. This is tempered by a corresponding fall in bond values and ongoing volatility in global equity markets.
“Whilst we are seeing improvements in funding levels across the board, those that have seen the biggest improvement include those with the lowest levels of liability hedging. Whilst it can be tempting to continue chasing further gains, employers and trustees should be considering if changes are needed to bank the gains seen to date.
“With funding improvements against a backdrop of high short-term inflation, scheme sponsors may expect to see an increase in focus on pension increases. In particular, those schemes that only pay statutory pension increases could see requests from trustees and members for one-off discretionary increases.
“Any additional discretionary pension increase will have a financial impact on the scheme and scheme sponsors should be clear on how this will impact its long-term plans for the scheme. Employers may want to proactively raise this with trustees and work with trustees to manage how this is communicated to members.”
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