The aggregate surplus of the 5,050 schemes in the PPF 7800 Index rose to £442.3bn in February 2024 from £425.4bn in January 2024.
This marks an improvement from the £381.4bn surplus recorded in February 2023. Out of these, 529 schemes were in deficit and 4,521 were in surplus. The funding ratio increased from 143.9 per cent in January 2024 to 146.1 per cent in February 2024
Broadstone senior actuarial director Jaime Norman says: “The PPF 7800 recorded an encouraging upswing through February demonstrating the continued strength of scheme funding at the current time.
“We have seen the strength of the de-risking market in 2023 through the financial results reported by insurers last week. Insurers are also re-iterating their positive outlook for the sector amid strong scheme demand for risk transfers solutions. This has been driven by the unprecedented improvement in funding levels seen over the past two years which has accelerated endgame plans for a significant number of schemes.
“The end-game options available to employers is also now expected to expand with the government set to make it easier to extract surpluses and the PPF lining itself up as a public sector consolidator. Whilst many schemes will already have an end-game strategy locked in, for those that don’t, employers should be sitting down with trustees to agree what the future of their scheme should look like.
“Whatever path is taken, schemes still need to have best-in-class administration, excellent data and meticulous preparation to give them the best chance of achieving their goal.”
Standard Life business development actuary Charlotte Fletcher says: “Funding positions for UK defined benefit pension schemes show a marginal increase in February. The aggregate section 179 funding ratio for the 5,050 schemes in the PPF 7800 Index now stands at 146.1 per cent at the end of February 2024, compared to 143.9 per cent at the end of January 2024.
“The PPF’s latest update shows that the funding levels of UK DB schemes continues to improve, with many DB schemes in stronger funding positions than they have been for many years. This is providing the opportunity for many trustees and sponsors to look to lock down risk and improve the security of their members’ benefits through the purchase of bulk purchase annuities.
“The regulatory landscape continues to evolve, with the Government’s ongoing consultation on options for DB schemes bringing to the forefront discussions around how surpluses are managed. While much of this detail still needs to be worked through, we expect that bulk purchase annuities will continue to be the primary means of securing members’ benefits. This is reflected in the continued strong demand for pension scheme buy-ins and buyouts, with record volumes predicted in 2024.”
Buck, a Gallagher head of retirement consulting Vishal Makkar says: “February saw little movement in the aggregate funding level of the schemes in the PPF Index after January’s drop in liabilities. DB schemes largely remain in the same healthy position, signalled by the aggregate surplus increasing to £442.3bn, with little change in liabilities and only a slight increase in asset values. The overall funding ratio still rests at 146.1 per cent and schemes will welcome this stability, especially when it comes to meeting their long-term funding targets.
“These funding improvements are already encouraging schemes to take a closer look at their endgame options and contemplate ‘what’s next’. Trustees will still be absorbing recent announcements around new funding regulations, alongside the Regulator’s General Code, so it makes sense that they are taking time to deliberate the best way forward for their endgames.
“The increase in surplus last month is interesting given the DWP’s recent focus on enabling DB surplus extraction, which could prove a useful avenue for encouraging UK investment. We need clearer guidance on extracting ‘trapped’ surplus, while of course protecting any safeguards for members’ benefits, but the consultation is ultimately a step in the right direction. The proposal, if implemented correctly, will not only give schemes more choice, but potentially boost the investment of assets that support the UK economy and UK gilt market as a whole.”