DB pension surpluses rose to a record level in October according to new data from XPS Group.
Its analysis shows that at the end of October schemes had assets totalling £1,452bn and liabilities of £1,243bn. This put the schemes on a record aggregate funding level of 117 per cent of the long-term value of liabilities.
The strong funding levels of many UK pension schemes improved through October in the lead up to the Labour Government’s first Budget, mainly driven by rising gilt yields. Immediately following the Budget, gilt yields have continued to rise, driven by expectations of higher future government borrowing.
Following the Budget, attention turned to the US presidential election result and last Thursday’s meeting of the MPC. As widely anticipated by markets, the Bank of England cut rates by 0.25 percentage points to 4.75 per cent. However, rising UK government borrowing costs following the Budget, coupled with uncertainties around the global impact of Trump’s re-election as US president, may cast doubts on the likelihood of further rate cuts when the MPC next meets in December
XPS Group senior consultant Jill Fletcher says: “Increases in gilt yields over October, reflecting expectations of higher government borrowing are a reminder that funding positions can change quickly.
With strong surplus positions and the introduction of new DB funding regulations, many trustees and sponsors are evaluating their long-term strategies to determine whether insurance is the right route for them, or if the scheme can be used to generate additional surplus for the benefit of both members and sponsors alike.”