XPS Pensions Group estimates that the aggregate surplus of UK pension schemes now stands at around £169bn.
According to research by XPS Pensions Group, DB pension schemes have continued to improve their funding position across the month of September despite the Bank of England holding interest rates steady for the first time since late 2021. Aggregate scheme assets decreased throughout the month as a result of schemes’ hedging tactics.
The funding positions of UK pension systems as of September 2023 have improved by about £14bn compared to long-term funding targets. As of September 25, 2023, the combined funding level of UK pension systems on a long-term target basis was 113 per cent, based on assets of £1,421bn and liabilities of £1,252bn.
Long-term gilt yields increased by around 0.2 per cent during the course of the month, cutting liabilities and raising scheme funding levels despite the Bank of England pausing its plan of rate increases.
XPS senior consultant Mark Witkin says: “There appears to be a shift in UK Government pensions policy to encourage DB schemes to run on and invest in growth. As highlighted in our recent report, our view is any role played by DB schemes in support of this policy must not risk the hard-won security of members’ benefits. Instead, DB schemes can be a source of surplus funding for investment in UK growth.
“If the Government does introduce legislation that affects how surpluses can be used, then sponsors and trustees should review their ultimate objectives in the context of this shift in policy. Whilst settling benefits with an insurer may still be the right target for most schemes, there are circumstances in which running a scheme on over the long term can have a positive impact on pension scheme members and the financial success of the sponsoring employer.”
