DB pension surpluses remain at near-record levels

DB pension surpluses remain at near-record levels

04 Apr 2024

• XPS Pensions Group estimates that the aggregate surplus of UK pension schemes on long-term targets remains extremely positive at approximately £151bn.
• A fall in long-term gilt yields of ~0.1% led to an increase in the value of liabilities, decreasing scheme funding levels.
• This fall was offset by aggregate scheme assets increasing over March 2024, driven by schemes’ hedging strategies.

Over March 2024, UK pension schemes’ funding positions remained unchanged relative to long-term funding targets, new XPS Pensions Group research shows. Based on assets of £1,454bn and liabilities of £1,303bn, 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 27 March 2024.

In March, The Pensions Regulator launched a consultation on the form and content of the ‘statement of strategy’. This will require trustees and sponsors to document their agreed long-term funding and investment strategy as well as key covenant, investment and funding risks and associated mitigations.

Felix Currell, Senior Investment Consultant at XPS Pensions Group said: “Aggregate pension scheme surpluses continue to remain near-record levels* as we reported last month, driven by strong asset performance across both credit spreads and equities. Whilst trustees and members should take comfort in this, it is critical that trustees remain engaged and vigilant in the running of their schemes.

“Although the requirements of TPR’s plans for ‘statement of strategy’ will be phased in to coincide with actuarial valuation deadlines, trustees should look to get ahead of this now by actively considering the risks they are exposed to as this will also aid them in protecting their funding positions.”

* 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/services/xps-pensions/xps-dbuk-funding-watch/