The aggregate surpluses of defined benefit (DB) Pension schemes more than halved over March to £25bn, after a fall in long-term gilt yields led to an increase in the value of liabilities, analysis from XPS Pensions Group has revealed.

The XPS DB:UK Tracker revealed that, across March 2023, UK pension schemes’ funding positions have fallen by around £43bn against long-term funding targets.

This was based on assets of £1,477bn and liabilities of £1,452bn, with the aggregate funding level of UK pension schemes on a long-term target basis standing at 102 per cent as of 30 March 2023, down from 105 per cent in February 2022.

XPS attributed the fall in scheme funding levels to a fall in fall in long-term gilt yields of around 0.3 per cent, which in turn led to an increase in the value of liabilities,

The group also noted, however, that increases in scheme assets over the month, driven by many schemes’ hedged investment strategies, has partially offset these liability increases.

Despite this, XPS stated that the drops in equity markets, caused in part by the high-profile collapse of some banks over the month, has had a detrimental impact on schemes’ overall funding positions.

Commenting on the update, XPS Pensions Group senior consultant, Charlotte Jones, stated: “The significant improvements in funding levels seen throughout 2022 have been partially unwound by falling gilt yields over March, driven by the banking crisis.

“This shock to the market shows that the volatility seen over 2022 looks set to continue through 2023. Any schemes without significant hedges will have seen plunging funding levels, rewarding those trustees that implemented de-risking investment strategies to lock in stronger funding positions.”

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