The aggregate surplus of defined benefit schemes rose markedly in May as rising gilt yields drove funding levels higher, alongside a change in the PPF methodology.
The PPF 7800 Index showed that the aggregate surplus of the 5,131 schemes is estimated to have increased over the month to £430.9bn at the end of May 2023, from a surplus of £378.6bn at the end of April 2023.
The figures show that of the 4,645 schemes in the PPF 7800 Index, 486 are now in surplus, with the funding ratio now at 145.1 per cent from 136.1 per cent at the end of April 2023.
Broadstone senior actuarial director Jaime Norman says: “We saw a return to volatility in May with strong rises in gilt yields off the back of persistently high inflation data that reinforced the potential for further Bank of England base rate hikes. Thankfully the movements were a lot less dramatic in both speed and scope than the events of Autumn 2022.
“For DB schemes, managing this turbulence and capitalising on the increases in scheme surpluses through an insurance transaction will be front of mind. However, fear of a recession could see gilt yields fall back and un-do some of the funding improvements of the past 18 months. Speed, therefore, is all important.
“Solid administrative process and best-in-class data standards will be all-important to attracting insurer attention in a congested market. Ongoing monitoring and specialist services will also support rapid transactions in such a competitive market.
“The DB market remains the subject of much debate with market noise around the use of scheme assets and consolidators, including the potential use of the PPF as a consolidator. However, trustees should not be distracted from the basic principle that those schemes that are well governed, have good data and sound investment strategy will have the best options available to them.”
