DB pension surpluses continue to rise to near-record levels

DB pension surpluses continue to rise to near-record levels

04 Mar 2024

• XPS Pensions Group estimates that the aggregate surplus of UK pension schemes on long-term targets remains extremely positive at approximately £154bn.
• A rise in long-term gilt yields of ~0.2% led to a decrease in the value of liabilities, increasing scheme funding levels.
• This rise was partially offset by aggregate scheme assets decreasing over February 2024, driven by schemes’ hedging strategies.

Over February 2024, UK pension schemes’ funding positions improved by c.£20bn against long-term funding targets, new XPS Pensions Group research shows. Based on assets of £1,420bn and liabilities of £1,266bn, the aggregate funding level of UK pension schemes on a long-term target basis remains extremely positive, at 112% of the long-term value of liabilities, as of 28 February 2024.

The update comes as the Government has this month released a consultation on models for allowing access to surpluses. The consultation outlines various possible ways trustees and sponsors could use surpluses to the benefit of members and sponsors, while also supporting the Government’s aim of schemes investing in productive assets.

Danny Vassiliades, Partner at XPS Pensions Group said: “The fact that aggregate pension scheme surpluses increased last month and are at near-record levels* underlines the timeliness of the Government’s consultation on models for surplus utilisation, first hinted at in the Chancellor’s 2023 Autumn Statement.

Any role played by DB schemes in support of wider UK growth must not risk the hard-won security of members’ benefits. However, with many schemes are now showing considerable surpluses and with the Government moving forward with its proposals, trustees and sponsors may wish to review their ultimate objectives in this context.”

* Source: XPS DB:UK, record levels October 2023.

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/