Every month, several firms issue trackers of the aggregate defined benefit (DB) scheme funding position. Here are the latest March 2022 estimates on the various measures…
PPF
The aggregate surplus of the 5,215 defined benefit (DB) schemes is estimated to have increased by £42.8bn during March on a Pension Protection Fund (PPF) compensation basis, the lifeboat fund says.
At the end of last month, the combined surplus was recorded at £176.4bn on a section 179 basis, with assets and liabilities falling by 0.6% and 3.4% respectively.
Assets totalled £1,721.5bn and liabilities amounted to £1,545.1bn, compared to £1,732.2bn and £1,598.6bn at the end of February.
Overall, the funding ratio rose from 108.4% at the end of February 2022 to 111.4% at the end of March - the highest level it has been for nearly 15 years.
PPF chief finance officer and chief actuary Lisa McCrory said: "Last month the aggregated funding ratio for the universe of schemes we protect increased to 111.4%, the highest it's been since June 2007.
"Scheme funding levels continue to be impacted by the increase in bond yields which have moved to reflect expectations that the Bank of England's policy rate will be higher in the coming years than it has for the previous decade."
Capita
Capita's FTSE 350 scheme funding tracker found a 0.1 percentage point fall in funding levels, which fell back to 95.7% at the end of the month.
The consultancy said liabilities had fallen by £11bn to £786bn, while assets had also fallen by £11bn to £752bn. This meant the overall deficit remained at £34bn.
It said the decrease in liabilities was due to increases in corporate bonds yields. However, it said this was partly offset by the impact of inflation.
Capita senior consultant Lee Wilson commented: "The decrease in liabilities was due to an increase in corporate bonds yields, partly offset by ongoing inflationary pressures. Stock markets have rebounded in the last couple of weeks following the initial losses observed at the start of the conflict however a huge amount of uncertainty remains and a fall in the value of gilts and, to a lesser extent UK corporate bonds, has resulted in a decrease in the total value of the invested assets.
"To mitigate the volatility in funding levels, sponsoring employers should be speaking to their advisers to ensure their schemes are addressing the key risks around investments, longevity, inflation, and interest rates."
XPS
On a long-term funding target basis, pension scheme deficits fell by £61bn over the month to the end of March 2022, according to XPS Pension Group's DB:UK Tracker.
The consultant revealed the deficit sat at £256bn at the end of March compared to £317bn the month prior. It said this drop was largely driven by rising gilt yields over the month reducing liabilities.
Based on assets of £1,751bn and liabilities of £2,007bn, the average funding level of UK pension schemes on a long-term target basis was 87% as of the 30 March 2022. For comparison, as of 28 February 2022 the average funding level was 84.8%.
XPS said asset values ended the period roughly where they started but were "volatile" throughout. The tracker also estimated it will currently take ten years to reach long-term targets under the proposed new funding code rules.
The consultant also noted that despite recent significant increases in short term inflation, long-term inflation fell slightly over the month helping to reduce deficits further.
Senior consultant Charlotte Jones said: "Gilt yields have reached their highest levels in the last three years due to commodity prices pushing up short term inflation rates.
"This is good news for pension schemes, which should review any de-risking opportunities, secure their liabilities and lock in any reduction in deficits by reducing risk in their investment strategy or taking advantage of the recent improvements in buyout pricing."
Mercer
Mercer's pensions risk survey data shows that the accounting deficit of defined benefit (DB) pension schemes for the UK's 350 largest listed companies fell by £7bn over the course of March, standing at £69bn at the end of the month - a decrease from £76bn at the end of February.
It said liabilities fell from £846bn at 28 February to £837bn at the end of March driven by further rises in corporate bond yields. Asset values were broadly unchanged at £768bn compared to £770bn at the end of February.
Mercer UK wealth trustee leader Tess Page said: "The first quarter of 2022 has closed out with an overall improvement in accounting deficits since the start of the year - from a deficit of £76bn at the end of December 2021 (coincidentally, this was the same as the deficit position at the end of February 2022) to £69bn by the end of March. It was, however, quite a ride with a number of big dips in markets along the way.
Page added: "The main driver of the change has been bond yields and their impact on liability values. Q1 2022 has been one of the worst quarters for government bonds in recent memory - but from a pension scheme perspective this generally means ‘good' news for underhedged schemes, as liability values dropped dramatically. Many trustee boards and sponsors with clear journey plans may now find themselves comfortability on track or even ahead of target and will be taking advantage of de-risking opportunities."
Mercer's pensions risk survey data relates to about 50% of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach companies have to adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts.
PwC
The funding status for the 5,000-plus corporate DB pension schemes in the UK continued to strengthen during March, PwC's latest pension trustee funding index shows.
The consultant said both asset and liability values fell over February 2022, resulting in a surplus of £40bn based on schemes' own ongoing funding measures.
The consultant said the value of the liabilities which schemes need to cover fell over March, partly because of reductions in bond prices arising from uncertainty in market outlook. It said asset values experienced volatility but recovered to original values over the month.
Combined, it said this resulted in an increase in surplus to £110bn based on schemes' own measures.
PwC's adjusted funding index shows a £260bn surplus - this incorporates strategic changes available for most pension funds - including a move away from low-yielding gilt investments to higher-return, income-generating assets, and a different approach for potential life expectancy changes.
PwC global head of pensions Raj Mody said: "Pension scheme funding levels have shown resilience, improving again this month in aggregate. However, when looked at on a scheme by scheme basis, a different picture emerges. We expect about 3,000 schemes are in a surplus position, leaving around 2,000 schemes in deficit. There is some pattern according to scheme size - the smallest and very largest schemes find themselves in surplus. This leaves a strained segment in the middle typically in deficit, and those schemes will still need a plan to repair those deficits."
PwC pensions actuary Laura Treece added: "Strategies for pension schemes which still have a deficit will be very different to those in surplus. They may need to rely on the sponsor's ability to pay money into the scheme to fund the deficit, perhaps for several more years. Even if no more cash is required but it's a waiting game to become better funded over time, trustees want to know they can rely on a resilient sponsor business.
"Trustees and sponsors of schemes in surplus will have more options available, and sooner than they originally thought possible, in terms of defining and reaching their endgame. In the meantime, they will want to manage any surplus buffer and their overall strategy with the same diligence they applied when in deficit. It's all too easy to leak value from inefficiencies in investment, risk and governance decisions when in surplus."
She added: "No matter whether a scheme is in surplus or deficit, there are several areas to manage carefully. This includes the scheme's ability to pay cashflows as they fall due, particularly given current volatility in asset prices and yields."
