UK pension schemes’ funding positions have fallen by around £4bn against long-term funding targets during January, XPS Pensions Group finds.
Analysis from the consultancy's DB:UK funding tracker found that, based on assets of £1,490bn and liabilities of £1,434bn, the aggregate funding level of UK pension schemes on a long-term target basis was 104% as of 31 January 2023.
XPS said a fall in gilt yields of 0.25 percentage points over January and the resulting increase in liabilities were partially offset by long-term inflation expectations falling by 0.1 percentage points over the month.
It added the strong performance of global equity markets combined with narrowing credit spreads and positive returns for corporate bond markets helped to further offset the impact of falling gilt yields, meaning funding levels remained relatively stable over the period.
The analysis also shows that defined benefit (DB) scheme durations have fallen significantly over 2022 from 19 to 15 years in conjunction with the significant rise in gilt yields and improved funding positions.
It said that following The Pensions Regulator's publication of its draft funding code, trustees will need to consider this fall in durations when setting their journey plans.
XPS Pensions Group senior consultant Charlotte Jones said: "Schemes fared well against their long-term targets in 2022, withstanding market volatility and gaining from partially unhedged positions against interest rates.
"Trustees of all schemes should now be looking to this period of relative calm as a great time to re-assess their investment strategies, including the opportunity to de-risk and lock in some of the gains made during 2022 through full or partial buy-ins."
XPS DB:UK tracks the funding position of UK DB pension schemes on a long-term target basis.
