The funding position for UK defined benefit pension schemes continued to improve in September according to the Pension Protection Fund’s 7800 Index.
Its latest published data shows the aggregate surplus of the 5,131 schemes in this index to have increased to £446.9bn at the end of September, up from a surplus of £441.1bn at the end of August.
This means that this index stood at 147.5 per cent at the end of September, up from the 146.2 per cent recorded the previous month. There are now a total of 461 schemes in deficit compared to 4,670 schemes in surplus.
Broadstone senior actuarial director Jaime Norman said: “The funding environment for defined benefit schemes appears to have stabilised after significant increases over the past couple of years.
“Pension schemes remain in a healthy position and the solidity in funding positions will provide further encouragement to pursue de-risking opportunities as quickly as possible. With intense competition it means that schemes must work hard to make put themselves in the strongest position to first attract the attention of insurers, and second to convert that interest into engagement.
“The pipeline looks to remain steady for insurers for some years and even well-prepared smaller schemes may find themselves joining the rearguard. Finding an administrator who will give a scheme the care and attention it deserves will help trustees to keep readiness to act.”
Standard Life senior business development manager Matt Richards adds:“Funding positions for UK defined benefit schemes continued to improve throughout September 2023 with markets increasingly expecting bond yields to be higher for longer.
“Schemes’ funding positions continue to remain strong and resilient even during times of economic turbulence, and trustees now have an opportune moment to focus on their DB de-risking and endgame strategies and move quickly to lock down risk. There have been significant movements in the bond market over the last week, which have seen 30-year bond yields rise to their highest levels since 1998. This current backdrop provides an opportunity for schemes looking to de-risk, with an improved buying opportunity.
“While this trend of strong funding levels is expected to continue, it is essential for trustees and their advisers to be giving adequate attention to preparation. Insurance is still considered the gold standard by trustees and sponsors, and for those schemes whose funding levels have accelerated, the choice may be between de-risking current liabilities through a bulk annuity transaction now, or pausing and investing in the administrative and preparatory work needed to ensure the best outcome.”
