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Rising gilt yields reduce long-term pension scheme deficits by over £60bn

Rising gilt yields reduce long-term pension scheme deficits by over £60bn

05 Apr 2022

  • UK pension scheme deficits against long-term funding targets fell by £61bn over the month to the end of March 20221, driven by rising gilt yields
  • Asset values ended the period roughly where they started but were volatile throughout
  • DB:UK estimates that it will currently take 10 years to reach long-term targets under the proposed new funding code rules

Deficits of UK pension schemes have reduced by c.£61bn over the month to the 30th of March 2022 against long-term funding targets, an analysis from XPS’s DB:UK funding tracker has revealed. The change was primarily driven by rising interest rates.

Based on assets of £1,751bn and liabilities of £2,007bn, the average funding level of UK pension schemes on a long-term target basis was 87% as of the 30th of March 2022. XPS estimates that at the 30th of March 2022 the average pension scheme would need an additional £25,000 per member to ensure it can pay their pensions into the long-term.

Drivers of the change

The significant improvement in funding levels over March was largely due to a sharp rise in gilt yields over the month reducing liabilities. Despite recent significant increases in short term inflation, long-term inflation fell slightly over the month helping to reduce deficits further.

Charlotte Jones, Senior Consultant at XPS said:

‘Gilt yields have reached their highest levels in the last three years due to commodity prices pushing up short term inflation rates. This is good news for pension schemes, which should review any de-risking opportunities, secure their liabilities and lock in any reduction in deficits by reducing risk in their investment strategy or taking advantage of the recent improvements in buy-out pricing.’


Notes to editor 

1 figures are up to 30 March 2022, due to a delay in the release of BoE gilt yields at 31 March 2022

2 including allowance for the combination of investment returns and current cash contributions

XPS’s 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 DB:UK is available here

Related links

XPS DB:UK Funding Watch

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