The Pension Protection Fund’s 7800 Index (PPF) shows that the aggregate surplus of the 5,131 schemes is estimated to have increased over the month to £446.1bn at the end of July 2023, from a surplus of £437.0bn at the end of April 2023, according to its latest update.
The funding ratio increased from 145.8 per cent at the end of June 2023 to 146.4 per cent, with the number of schemes in surplus rising to 4,673 from 4,652.
Broadstone senior actuarial director Jaime Norman says: “We are now entering a new phase of the current economic cycle which presents opportunities and challenges for pension schemes and their trustees.
“Persistent inflation is starting to come down and economists forecast that we are nearing the end of the Bank of England’s rate hiking. Growth assets delivered positive performance through the month as the market becomes increasingly optimistic that a recession is looking less likely as inflation starts to come under control.
“The second half of the year is therefore a crucial time for pension scheme trustees to take stock, particularly given many will have significant improvements in their funding position over the past 18 months.
“Their job now will be capitalising on the market environment either by rapidly pursuing their end-game objectives or assessing the suitability of their investment strategy to the current economic situation.
“In such a congested market, trustees will also need to ensure their data and administration is in good order to make their scheme as attractive as possible to insurers.”
Buck head of retirement consulting Vishal Makkar says: “As expected, we have not seen much movement in aggregate assets or liabilities over the course of July and the overall funding ratio is sitting in a still healthy position at 146.4 per cent as we start August. This doesn’t mean, however, that it has been a quiet start to summer for trustees.
“The Mansion House reforms, announced by the Chancellor in July, represent a significant development for the industry. The details highlight the government’s commitment to DB scheme consolidation in the form of superfunds, as well as outlining further potential changes to investment guidelines, and the PPF itself.
“The driving force behind many of these proposed changes is the government’s intention to improve member outcomes, which is an important goal, and an objective that should be at the forefront of trustees’ thinking too.
“Throughout this process, trustees have been invited to give their thoughts, via a number of different consultations. This even extends to the ongoing consultation to determine whether trustees currently have the knowledge and skills they need.
“This is a positive and collaborative approach from the Department for Work and Pensions and, by contributing to these consultations, trustees have the power to shape the future of the DB pensions landscape. This is an important opportunity for schemes and one that comes at a pivotal moment in the future of the industry – it will likely keep many trustees busy over the summer.”
Standard Life senior business development manager Kieran Mistry says: “Funding positions for UK defined benefit schemes remained stable at the end of July 2023, despite bond yields and inflation levels falling slightly. The aggregate section 179 funding ratio for the 5,131 schemes in the PPF 7800 Index now stands at 146.4 per cent at the end of July 2023, compared to 145.8 per cent at the end of June 2023.
“The outlook for the second half of the year looks positive and there are no signs of activity slowing down. We anticipate an increasing number of schemes will approach and engage with insurers as a result of accelerated funding levels, making for a very busy market.
“For schemes seeking to reduce risk and benefit from the gains made over the first half of the year, insurance via bulk annuities remains the safest and most effective option to provide certainty and security for members. Thorough preparation therefore remains vital to secure the best opportunity in what is set to remain a very busy market.”
