Shalin Bhagwan: Data highlights the resilience of DB funding and the extent to which higher discount rates can offset market stress
The aggregate surplus of the 4,838 defined benefit (DB) schemes in the Pension Protection Fund’s (PPF) 7800 Index fell by £9.9bn in March amid significant market volatility, latest data reveals.
The latest update to the PPF's 7800 Index, which estimates the section 179 funding position of DB schemes, revealed the aggregate surplus had fallen to £263.8bn, compared to the £273.7bn surplus recorded in February.
The lifeboat fund said the total value of DB scheme assets fell from £1,161.3bn to £1,105bn in March, while liabilities also fell, from £887.6bn to £841.2bn.
Despite this, the funding ratio improved by 0.6 percentage points from 130.8% to 131.4%.
PPF chief actuary Shalin Bhagwan said: "Global markets were highly volatile through March as the escalation of the US–Israel–Iran conflict triggered a global energy supply shock. Although equities stabilised towards the end of the month following indications of possible ceasefire talks, markets still ended March lower overall. At the same time, higher oil and gas prices pushed up inflation expectations, driving gilt yields higher and flipping market pricing for the UK from expecting rate cuts in 2026 to rate hikes.
"Against this backdrop, the PPF‑eligible universe saw a £9.9bn fall in the aggregate funding position, reflecting weaker equity markets. However, the funding ratio improved by 0.6 percentage points to 131.4%, as liabilities fell, highlighting the resilience of DB funding and the extent to which higher discount rates can offset market stress."
Source: Pension Protection Fund
Standard Life managing director for pensions risk transfer Claire Altman said the data showed that scheme funding levels remained "healthy" despite the more volatile market backdrop.
She said: "This comes on the back of beneficial strategies put in place by many schemes after 2022. Whilst there have been reports that a small number of schemes have experienced cash calls on their liability-driven investment positions as gilt markets have moved, this is not unexpected given how hedging programmes operate in periods of volatility.
"It's important to remember that we are now operating in a world of more persistent inflation, higher interest rates and greater geopolitical risk which inevitably puts pressure on investment strategies. While higher long term interest rates can support funding by reducing the value of liabilities relative to the assets, the benefit depends on how well schemes are hedged."
Altman added: "For schemes where funding levels remain strong, moving to buy out can be an attractive option, removing exposure to market and operational risk altogether and giving trustees and sponsors long term certainty that members' benefits are fully secured."
Broadstone senior actuarial director Jaime Norman agreed the funding position for most schemes remains healthy – noting the aggregate funding position was up by around £50bn compared to a year ago, highlighting the continued optionality available to many trustees.
But Norman added a new wave of inflationary pressure was now likely to hit the market, with interest rate expectations rising as a result – noting this could impact those schemes that do not have a matched strategy in place.
He said: "Trustees and scheme manager should continue to monitor their investment strategy to protect their long-term objectives and support their members.
"It does not appear, however, that the current volatility is impacting the insurance market which continues to quote for new business as usual as schemes continue to secure their members' benefits through a de-risking transaction."
