DB funding - November 2021: Surplus drops £33bn

PPF 7800 finds a big fall in funding over November but aggregate surplus remains

James Phillips
clock • 7 min read

Every month, several firms issue trackers of the aggregate defined benefit (DB) scheme funding position. Here are the November 2021 estimates on the various measures…

PPF 7800

The aggregate section 179 scheme surplus plunged by nearly 30% over the course of November as a drop in gilt yields hit scheme finances, says the Pension Protection Fund (PPF).

The compensation scheme's monthly 7800 index saw a £33.31bn drop in the aggregate overfunding position, which reduced to £81.4bn.

While assets had grown by £38.7bn to £1842.7bn, liabilities soared by £71.8bn to £1,761.3bn.

The overall funding ratio dropped by 2.2 percentage points to 104.6%.

March to October data has been recalibrated to reflect changes in assumptions within the dataset following the publication of the 2021 Purple Book last week, which also saw 107 schemes removed from the index. The consequence was a general 0.9 percentage point improvement in funding overall, the PPF said.

However, a further 178 schemes were estimated to have fallen into deficit in November, with 2,403 schemes recording an estimated deficit of £125.9bn between them. The aggregate surplus of the schemes in surplus was £207.3bn.

Chief finance officer and chief actuary Lisa McCrory said: "This worsening in scheme funding is due primarily to recent decreases in bond yields and reminds us how market volatility can impact scheme funding levels."

Over the course of the month, yields on 10-, 15- and 20-year fixed interest gilts fell by 20 basis points (bps), 18bps and 19bps respectively, while the 5-to-15-year index-linked gilt yield dropped by 28bps.

Meanwhile, the FTSE All-Share Total Return Index saw a return of -2.2%, and the FTSE All-World Ex-UK Total Return Index went the other way to rise by 1.2%.

Buck head of retirement consulting Vishal Makar said: "Clearly the pandemic has been a hugely difficult period for defined benefit (DB) schemes and many of their sponsors, but overall, since the start of the year DB schemes funding positions have generally been on a more positive trajectory, as evidenced by today's surplus figures, albeit with some volatility along the way."

But he said schemes faced a number of logistical, economic, administrative and regulatory hurdles in the new year.

"Careful planning and preparation will be crucial to help schemes prepare for the year ahead."


The accounting deficit of FTSE 350 schemes rose by £10bn over the course of November, according to Capita.

The consultancy's monthly tracker recorded a £50bn funding shortfall at the end of the month after assets rose by £25bn to £851bn and liabilities by £35bn to £901bn.

The overall funding level dropped by one percentage point to 94.7%.

Head of corporate consulting Tim Rimmer commented: "It's been a bit of a rollercoaster of a year for many companies, but as things stand accounting deficits should be lower than last year for the majority of December 2021 reporters.  

"After a reasonably quiet November, it is still difficult to predict the year-end outturn, but our best estimate is positive. Key risks continue to be a weak economic recovery coupled with rising inflation expectations."


Rising inflation expectations and a significant fall in gilt yields, as well as Omicron-induced uncertainty in the equity market, led to a £54bn rise in scheme deficits over the course of November, according to XPS Pensions' DB:UK tracker.

At the end of November, the total deficit on a long-term funding target (LTFT) basis was estimated to be £392bn. This is calculated under the proposed regulatory rules, allowing for investment returns and cash contributions.

While assets had increased in value by £66bn to £1,959bn, they had been more than offset by a £120bn rise in liabilities, which hit £2,351bn, XPS said.

The resulting funding level was 83.3%, having dropped by 1.5 percentage points over the course of the month.

The DB:UK tracker estimates pension scheme funding positions based on a discount rate of gilts plus 0.5% and takes into account the monthly impact of factors including inflation and gilt yields.

XPS Pensions consultant Tom Birkin noted that the Consumer Prices Index is now expected to peak at 4.4% or higher this year, adding to liability values.

However, there had been a £136bn fall in liabilities and £10bn deficit decrease overnight between 31 October and 1 November, demonstrating the market's volatility, XPS estimated.

He continued: "This period of significant market volatility looks set to continue with investor uncertainty over the new Omicron Covid-19 variant being added to the melting pot.

"If inflation expectations continue to rise, then liabilities can be expected to increase further, however most schemes do have significant protection in place in the form of capped inflationary increases on benefits and inflation hedging investments"

The firm calculated that it will now take just over 19 years on average for schemes to reach their LTFTs, slightly longer than the timeframe in which cashflows peak and schemes are estimated to be "significantly mature" under the proposed defined benefit funding code revision.

It added that member options exercises, including trivial commutation and transfers, had the potential to reduce liabilities by £54bn.


FTSE 350-sponsored defined benefit (DB) schemes experienced a £10bn deterioration in their funding level over the course of November, says Mercer.

On an accounting basis, the aggregate deficit for these schemes increased to £104bn, the highest it has been since July 2020.

This came as assets grew by £21bn to £858bn, but were offset by a £31bn rise in liabilities to £962bn.

The overall funding level dropped by 70 basis points to 89.2%.

Mercer said the moves were due to a fall in corporate bond yields and an increase in market expectations of inflation.

UK wealth trustee leader Tess Page said: "The impact on markets of the new Omicron variant served to highlight that the pandemic is not yet over. Alongside this fresh uncertainty, inflation remains a hot topic with significant increases observed and potentially more to come. While some inflation drivers such as supply chain issues and reopening price pressures are arguably ‘temporary', others may be longer term.

"As a pandemic-fatigued nation heads towards the Christmas break, this was a month in which unhedged assets again failed to keep pace with liabilities - risk management should be high on the agenda for all schemes in 2022."


The aggregate surplus of the UK's defined benefit (DB) schemes dropped by £10bn over the course of November, according to PwC.

Using a scheme-specific gilts-based measure, the consultancy estimated the combined surplus was £20bn at the end of the month.

This was calculated as assets grew by £50bn to £1,870bn and liabilities by £60bn to £1,850bn.

The resulting funding level dropped by 60 basis points to 101.1%.

Meanwhile, on its adjusted funding basis - which incorporates strategic changes to higher-return, income-generating assets and an altered approach to longevity assumptions - the surplus remained stable at £200bn, although the funding level dropped by 30bps to 112.0%.

Global head of pensions Raj Mody said the continued use of a gilts-based measure, however, was "not necessarily helpful for trustees and sponsors when they are making real-life decisions or working out their best strategy for delivering member benefits in an efficient and secure way".

He continued: "The focus on gilts when calculating pension scheme liability values in the current regime causes all sorts of dysfunctions and inefficiencies in pension scheme management. It inevitably influences decision-making. Some trustees and sponsors over-invest in gilts to try and match how their liability values are assessed for funding regulation purposes, to reduce the chance of nasty surprises - what you measure is what you get."

Over the last decade, investment in gilts by pension schemes has more than doubled from 23% to 50% of assets, PwC said, resulting in £900bn of scheme assets in gilts. The consultancy estimated around half a trillion of pounds could be released to other assets if a more flexible funding regime was adopted.

Pensions actuary Laura Treece added: "Changes in the way pension schemes are assessed could allow more of their assets to be invested in productive UK assets. These assets would help pension schemes ensure they are investing optimally and could generate the positive real returns needed to pay benefits for their members. It would also support long-term economic growth, innovation and opportunities for the UK economy. This in turn is good for the health of the pension scheme and its sponsor - it's a virtuous circle."

James Phillips
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James Phillips

Professional Pensions journalist from 2016-2022

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