The aggregate surplus of defined benefit (DB) pension schemes rose by around £19.3bn in April, increasing from £359.3bn at the end of March to £378.6bn at the end of April 2023, the latest Pension Protection Fund (PPF) 7800 Index has revealed.

This was based on total assets of £1,426.1bn and £1,047.5bn in total liabilities, with the average funding ratio for UK DB schemes also increasing from 133.2 per cent at the end of March 2023 to 136.1 per cent at the end of April.

The latest funding improvements mark a partial reversal on the previous month, when market volatility saw the aggregate DB surplus fall by £22.1bn, as well as a year-on-year improvement, with an aggregate surplus of £221.9bn previously recorded in April 2022.

According to the index, a number of schemes have also returned to surplus in April, as there were 4,440 schemes in surplus and 691 schemes in deficit in April, down from 776 in March.

In line with this, the deficit of the schemes in deficit at the end of April 2023 fell to £4.5bn, down from £5.7bn at the end of March 2023.

Commenting on the update, PPF chief finance officer and chief actuary, Lisa McCrory, stated: “In April, with the dust settling on the turmoil that impacted the banking sector in the previous month, we saw government bond yields rise and market’s turning their focus back to sticky inflation.

“As yields rose, the value of scheme liabilities fell while, due to schemes in aggregate being under-hedged to interest rates, the estimated value of scheme assets fell more slowly – ultimately resulting in an improved funding ratio and aggregate surplus.

“We also saw the publication of updated guidance from The Pensions Regulator regarding the implementation of liability-driven investment strategies and we would encourage scheme trustees to take note of this.”

Adding to this, Broadstone senior actuarial director, Jaime Norman, warned that while long-term interest rates are more stable than in 2022, there is still "considerable market volatility not least through the tremors we have seen in the global banking system and persistent inflationary pressures".

Despite this, she acknowledged that DB pension schemes have largely maintained their strong funding levels generated from last year’s rise in gilt yields and posted further gains through April as markets stabilised.

"For DB schemes, the rise in surplus levels has given many an opportunity to reach end-game far quicker than they would have thought a year ago but agility will be needed to take advantage," she continued.

“We have already witnessed a rapid start to the year in terms of de-risking transactions that look to secure the future payments of scheme members with an insurer.

"We have also seen the Bank of England fire a warning shot across the bow of the bulk annuity market.

"Schemes will need best-in-class administration and data standards to attract insurer interest in this competitive market while ongoing monitoring will also allow schemes to transact rapidly should the opportunity arise.”

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