The aggregate surplus of defined benefit (DB) pension schemes fell from £379.1bn to £371.5bn in November, the Pension Protection Fund’s (PPF) 7800 Index has revealed.

The funding ratio decreased from 136 per cent to 133.7 per cent during the same period.

According to the PPF’s latest update, assets increased from £1,431.7bn at the end of October to £1,472.8bn at the end of November.

However, this was more than offset by liabilities also rising, from £1,052.5bn to £1,101.3bn during the month.

The number of schemes in deficit increased from 709 to 746, with the deficit of the schemes in deficit also increasing from £4.7bn at the end of October to £5.8bn at the end of November.

The number of schemes in surplus decreased to 4,385, while the total surplus of schemes in surplus increased to £377.3bn.

The PPF has moved to the new Purple Book 2022 dataset, resulting in the re-stating of the funding position from March 2022 to October 2022 to reflect the new data.

The impact as at 31 October was an increase in the funding ratio of 2.4 percentage points.

PPF chief finance officer and chief actuary, Lisa McCrory, stated that the increase in liabilities and assets in November was mostly driven by a fall in bond yields.

“The main drivers were the UK government's Autumn Statement and a tweak to the outlook for monetary policy with central banks now expected to slow the pace of rate hikes in the coming months,” she continued.

“While bond yields fell during November, they remain well above the levels that the started the year. This is reflected in the fact that the bounce-back in assets and liabilities in November is small relative to the falls over previous months."

Also commenting on the PPF’s latest update, Buck head of retirement consulting in the UK, Vishal Makkar, said: “At the end of November 2021 the aggregate surplus of the schemes in the PPF Index was £81.4bn. As we approach the end of another tumultuous year, today’s figures show that the surplus now stands at a staggering £371.5bn. Of the 5,215 schemes in the PPF 7800 Index, 4,385 are now in surplus, compared to just 2,812 one year ago.

“2022 of course hasn’t been plain sailing and the disruption caused by the autumn ‘mini’ Budget showed how trying to maintain LDI hedging levels caused serious liquidity constraints for some schemes. Ultimately though, DB pension schemes are for the most part in a much stronger funding position than they were at the start of the year.

“This should give trustees some much-needed breathing space to focus on their longer-term journey planning and undertake necessary data administration work. Data and governance will continue to be major themes for the new year, which looks set to be dominated by a range of new requirements on trustees’ time.”

Broadstone senior actuarial director, Jaime Norman, added: “Despite this month’s dip in the total surplus, scheme funding has improved significantly throughout the year and will have taken many schemes closer to endgame than they would have planned for. The recent market volatility appears to have subsided, and schemes can look ahead to the coming months with renewed confidence.

“As such, many scheme sponsors approaching end of year statutory reporting will find themselves in the unusual position of dealing with a surplus rather than a deficit. While this is great news from the perspective of their members and scheme security, adjusting to reporting a surplus will require some attention given the complexity of the rules. Employers should be looking to get support as early as possible on their year-end position and their auditor’s interpretation of scheme rules, as well as reviewing future contributions.

“Looking ahead, 2023 looks like it will be an incredibly busy year for the de-risking market given the improvements in funding levels. In such a crowded market, only those trustees and employers that are best prepared will be able to capitalise on these opportunities so forward-planning remains key.”

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