PPF posts £18.6bn rise in scheme surpluses during May

The PPF index – which provides the estimated funding position of the 4,969 schemes in its universe on a s179 basis – showed the aggregate funding position had increased from a surplus of £202.5bn at the end of April to £221.1bn at the end of May.

The aggregate funding level rose from 122.8% to 125.6%.

PPF chief actuary Shalin Bhagwan said: "Global government bond yields rose during May with heightened concerns around whether markets can absorb heavy government borrowing over the coming years, driven by the US budget starting to pass through Congress and dislocations in Japanese government bond markets. This caused defined benefit (DB) schemes' asset and liability values to fall.

"Meanwhile, equity markets continued to rebound from April's lows as the US continued to make progress on trade talks, notably with the UK. This partly offset the fall in the value of bond assets, meaning that funding levels of PPF-eligible DB schemes improved, with the estimated aggregate surplus increasing by £18.6bn to reach £221.1bn, and the and the funding ratio rising by 2.8 percentage points, to 125.6%."

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Commenting, Broadstone senior actuarial director Jaime Norman said: "It is pleasing that despite continued volatility in global markets, pension scheme funding remains resilient posting notable gains through May. Gains in equity markets offset rising bond yields amid continued uncertainty over Government borrowing and the impact of potential trade wars.

"The continued strength of funding could see sponsors rushing to discuss with trustees about the best route forward to release surpluses, to enable greater business investment. The increased flexibility from the Pension Schemes Bill, alongside new guidance from the regulator, broadens the options for well-funded schemes.

"Now there is clarity over the government's plans in respect of funding and the Virgin Media case, and funding remains healthy, we would expect a renewed acceleration in pension scheme de-risking into the second half of the year. It has been a relatively quiet period for the bulk annuity market as market volatility and uncertainty over the Pension Schemes Bill caused many to take a ‘wait and see' approach."

Gallagher managing director Vishal Makkar added: "This month's PPF 7800 Index shows an increase in aggregate funding, which stands at a surplus of £221.1bn. The UK's network of DB schemes is in robust shape, and it will likely become an increasingly central pillar in the nation's economic life, especially as the Pension Schemes Bill makes its way through parliament. Following the first reading of the bill on 5 June, several details have come into focus.

"A new clause will encourage Local Government Pension Scheme funds and pools to further consolidate their assets, laying the cornerstone for the creation of new DB superfunds. This aims to open the doors for new investment into essential infrastructure projects, such as roads and new-builds. However, what is vital is that members are protected and that any investment is scrutinised to the highest standard of fiscal responsibility.

"The bill also contains proposals to allow DB pension funds to release surplus back to the sponsors, without being fully insured beforehand. However, trustees must ensure members are adequately protected and that any possible risk is analysed fully.

"As the bill journeys through the usual rounds of parliamentary scrutiny, which could take several months and involve many amendments, the onus is on trustees to keep scheme members well-informed on the bill and what its final form could mean for their finances. In an ever-changing economic climate, clear and transparent communication is a top priority."

Standard Life business development actuary Charlotte Fletcher agreed: "As market volatility settled in May, pension scheme funding levels have continued to be broadly resilient to this turbulence, with the government highlighting that funding levels for DB have hit a record high, with three in four now in surplus. In light of the Pension Schemes Bill announced last week, regulatory change is high on the agenda, and trustees and sponsors will be focused on the potential impacts for their schemes. However, activity within the BPA market remains high, amid ongoing recognition of the valuable role bulk purchase annuities can play in providing security and the best outcomes for members."