The aggregate surplus of the 4,838 defined benefit (DB) schemes in the Pension Protection Fund’s (PPF) 7800 Index fell by £5.3bn in April, latest figures show.
The latest update to the lifeboat fund's 7800 Index, which estimates the section 179 funding position of DB schemes, revealed the aggregate surplus decreased to £258.5bn as at the end of last month, compared to the £263.8bn surplus recorded in March.
The index showed total scheme assets decreased by 1.6% from £1,105bn at the end of March to £1,087.6bn at the end of last month. Over the same period, total scheme liabilities fell from £841.2bn to £829.1bn.
In addition, the deficit of the schemes in deficit increased by £1.9bn, rising from £18.9bn to £20.8bn.
The index also reported that the funding ratio narrowed slightly from 131.4% to 131.2%, while the number of schemes in the index remained unchanged.
The index estimates the funding position of the DB schemes in the index based on adjusting the scheme valuation data supplied to The Pensions Regulator (TPR) as part of the schemes' annual returns, on a section 179 basis, for DB schemes who may be eligible for entry into the PPF.
Source: PPF
PPF chief actuary Shalin Bhagwan said: "Market conditions remained challenging through the month as persistent inflation pressures and elevated energy prices kept global bond yields high. Expectations of further central bank tightening continued to build, with UK gilt yields rising as investors reassessed the path of monetary policy. Against this backdrop, risk asset performance was mixed and bond markets remained under pressure.
"Within this environment, the PPF 7800 index recorded a £5.3bn fall in the aggregate funding surplus, taking it to £258.5bn. The funding ratio dipped to 131.2%, as scheme assets fell by 1.6% and liabilities by 1.4%. Despite the modest softening, funding levels remain robust, supported by the continued influence of higher discount rates.
‘Robust' surpluses
Commenting on the PPF 7800 Index data, Standard Life managing director for pension risk transfer and individual retirement Claire Altman said: "While aggregate funding levels have fallen slightly, the latest PPF 7800 Index figures show that overall surpluses remain robust across UK DB schemes. Against this backdrop, TPR's latest annual funding statement highlights a shift in focus from deficit repair to endgame planning, as more trustees consider how and when to secure long-term outcomes.
"While run-on may be appropriate for some larger schemes, it brings greater governance demands and risk. In addition, the slight fall in funding levels seen over the last two months is a reminder that surpluses are not locked in and can shift as market conditions change. This means that for many trustees, established approaches such as buy-ins and longevity hedging will remain central as they weigh up their options."
Broadstone actuarial director Sarah Elwine added: "Pension scheme funding dropped back in April as continued market volatility and inflation expectations support elevated bond yields. With the conflict in Iran seeming unlikely to end imminently and domestic political uncertainty lingering in the UK, trustees must once more deal with a challenging macro environment.
"This could impact pension schemes that do not have a matched strategy in place, and so trustees and scheme managers should continue to monitor their investment strategy to protect their long-term objectives and support their members.
"However, pension scheme funding remains in a healthy position with the aggregate surplus significantly higher compared to last year. Alongside the passing of the Pension Schemes Act, it highlights the fact that many trustees still have optionality and the insurance market continues to quote for new business for schemes looking to secure their members' benefits."
