DB funding - December 2021: PPF records £216bn swing

Big improvement in bond yields help index record highest funding level in nearly 15 years

James Phillips
clock • 5 min read

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

PPF 7800

Defined benefit (DB) pension schemes saw an aggregate £215.7bn swing in fortunes over the course of 2021, moving from deficit to surplus, according to the Pension Protection Fund (PPF).

The compensation scheme's 7800 index recorded a £129.3bn surplus at the end of December 2021, compared to an £86.4bn deficit at the same date in 2020.

Overall, the funding level shot up by 12.2 percentage points during the year, hitting 107.7% as of 31 December, its highest level since the 108.8% recorded in March 2007.

A significant portion of the improvement came in December itself when the surplus rose by £47.9bn and the funding level by 3.1 percentage points.

While assets fell by £24.7bn to £1,818bn, liabilities dropped significantly by £72.6bn to £1,688.7bn.

Chief finance officer and chief actuary Lisa McCrory said the improvements in December were largely due to a significant rise in bond yields.

Over the month, 10-, 15- and 20-year fixed-interest gilt yields rose by 15 basis points (bps), 17bps, and 20bps respectively, while the 5-to-15-year index-linked gilt yield rose by 34bps.

Meanwhile the FTSE All-Share and FTSE All-World Ex-UK total return indices rose by 4.7% and 1.6%.

This helped to bring an additional 251 schemes into a surplus position, the PPF said. Nevertheless 2,152 schemes remained in deficit with a combined funding shortfall of £97bn, albeit down £28.9bn during the month.

With the index having ranged from a low of 104.2% in July to this month's high, McCrory commented: "The unpredictable fluctuations in the 7800 funding ratio over the past few months are a clear sign of the ongoing market volatility and the need for caution."

Buck UK head of retirement consulting Vishal Makkar said, however, that there was some stability within the figures

"As schemes begin their third year of the Covid pandemic, today's figures suggest that markets have found some degree of stability and really have learned to live with the virus. Covid is still a potential source of volatility, as this latest Omicron spike has proved, but it's no longer on the same scale as the initial impact it had in 2020."

He said the ongoing economic recovery and fiscal responses - including interest rate rises, inflationary pressure and supply chain issues - will impact many scheme sponsors and would therefore "require careful thought and consideration" from trustees.


FTSE 350 defined benefit (DB) scheme funding levels improved by 3.2 percentage points over the final month of 2021, according to Capita.

On an IAS 19 basis, the overall funding level was 97.9% as the estimated deficit dropped by £30bn to £20bn amid a sharp fall in the value of liabilities.

While assets had reduced by £25bn to £826bn, liabilities fell by £55bn to £846bn.

Head of corporate consulting Tim Rimmer said: "December 2021 saw significant rises in corporate bond yields, which coupled with a reduction in long-term inflation is giving most companies a much healthier year-end position."

He added: "Those rises were also matched in the gilt market and so schemes with ongoing funding valuations should consider whether allowing for post-valuation experience gives a lower deficit and cash requirements."


The FTSE 350 DB scheme deficit fell by £18bn in December to end 2021 at £86bn, according to Mercer.

The consultancy, which also uses an IAS 19 accounting basis, said assets had fallen by £31bn to £827bn, while liabilities had dropped by £49bn to £913bn.

Consequently, the funding level rose by 1.4 percentage points to 90.6%.

Over the course of 2021, the deficit rose by £16bn from the £70bn recorded at the end of December 2020 when the funding level was also higher at 92.3%.

Mercer UK wealth trustee leader Tess Page said: "Anyone comparing December 2020 with December 2021 would conclude that UK pension deficits were stable and plain sailing. However, this belies the rocky ride across the period - 2021 was another strange year, and we saw bond yields and investment markets jumping around a lot, and considerable debate around future inflation.

"That said, given the ongoing pandemic and considerable economic uncertainty, schemes have arguably made it through so far with relatively little damage. Looking ahead to 2022, we see some looming risks."

These include monetary policy in response to issues such as rising inflation, as well as the continued threat of Covid-19 and, particularly, the Omicron variant.

Page concluded: "Overall, while some pension schemes have kept their heads comfortably above water in 2021, others are barely staying afloat. Schemes that have not yet managed their significant risks (notably inflation, interest rates, and growth asset risk) will see volatile funding level movements from month-to-month.

"2022 therefore brings opportunities to map out a clear plan for risk management - with the new funding code and single code of practice on the horizon there has never been a better time to do so."

XPS Pensions

Schemes had a £310bn deficit on a long-term funding target (LTFT) basis at the end of December, according to XPS Pensions' DB:UK Tracker.

The funding situation is calculated on a gilts plus 0.5% basis and reveals an £82bn improvement compared to November 2021, or a £25bn improvement compared to December 2020.

Assets totalled £1,895bn while liabilities were estimated at £2,205bn. These had fallen over December by £64bn and £146bn respectively.

The overall funding level had improved by 2.6 percentage points to 85.9% between November and December, or by one percentage point over the entire year.

Actuarial consultant Tom Birkin commented: "The Bank of England's decision to increase interest rates despite the emergence of Omicron is not unexpected given significant inflation pressures, and the resulting rise in gilt yields is welcome news for sponsors of pension schemes after a difficult November. With uncertainty over inflation and Omicron persisting, sponsors and trustees should be braced for further volatility in 2022."

Senior investment consultant Felix Currell added: "With such significant movement in interest rates and inflation, the precision of hedging strategies will have been stressed over the year. This may have introduced some misalignment and we would recommend that trustees review their current hedge exposure to ensure it remains in line with their target."

James Phillips
Author spotlight

James Phillips

Professional Pensions journalist from 2016-2022

More on Defined Benefit

Partner Insight: Take care when choosing the route to endgame – there may be more options than you think

Partner Insight: Take care when choosing the route to endgame – there may be more options than you think

Pension schemes have been striving to find the ideal route to endgame for decades now.

Nikesh Patel, Van Lanschot Kempen
clock 12 April 2024 • 2 min read
DB schemes could generate surplus of more than £500bn through run on

DB schemes could generate surplus of more than £500bn through run on

Van Lanschot Kempen says alternative approach to buyout could have benefits

Jonathan Stapleton
clock 11 April 2024 • 2 min read
SPP urges TPR to reduce scheme burden over DB statements of strategy

SPP urges TPR to reduce scheme burden over DB statements of strategy

Society says some areas of TPR’s consultation will be ‘challenging’ and ‘costly’ for schemes

Martin Richmond
clock 11 April 2024 • 3 min read