The aggregate surplus of defined benefit (DB) pension schemes stood at £381.4bn at the end of February 2023, up from £374.4bn at the end of January, the Pension Protection Fund’s (PPF) 7800 Index has revealed.

This marks a year-on-year improvement, with a surplus of £133.6bn recorded at the end of February 2022, whilst the funding ratio has also increased from 108.4 per cent in February 2022 to 137 per cent in February 2023.

This was based on total assets of £1,413.2bn and total liabilities of £1,031.8bn, with the PPF revealing that whilst total scheme assets saw a 2.6 per cent fall over the month, liabilities fell by 4.1 per cent, also marking a 35 per cent year-on-year fall.

PPF chief finance officer and chief actuary, Lisa McCrory, attributed the fall in liabilities to higher government bond yields, explaining that markets are anticipating a higher-than-expected peak in central bank rates in developed markets, including the UK.

“Although UK government bond yields reached levels last seen in the market disruption last October, there are no signs of a repeat given the action taken since then by pension schemes to increase liquidity buffers, which appears to be proving effective," she continued.

Adding to this, Buck UK head of retirement consulting, Vishal Makkar, said that whilst the increased surplus has kept DB schemes in a "solid funding position", many trustees will likely be focused on announcements from the Treasury and the UK’s wider economic performance, particularly ahead of the spring Budget.

Makkar stated: “The latest UK growth figures have painted a rather worrying picture, confirming that since the start of the pandemic the UK has had the largest decline in GDP of any of the G7 countries.

"The IMF downgraded the UK’s growth forecast earlier this year, predicting that it will be the only G7 country to see its economy shrink in 2023. This difficult economic climate could well impact some scheme sponsors and potentially prove tough, even for well-funded DB schemes.

“Beyond the Budget, schemes will likely also be keeping an eye on the next Bank of England rate decision, which is due later in March, as well as new CPI inflation figures.

"Both of these could have implications for schemes’ investment strategy and may need to be factored into planning for the year ahead.”

De-risking is also expected to remain a focus, as Broadstone senior actuarial director, Jaime Norman, pointed out that the insurance market has "got off to a flyer in 2023 with a record-breaking transaction driving total volumes close to the total in 2022 already".

“While the market has remained calm through January and February, the collapse of Silicon Valley Bank is a reminder that schemes must ensure they are always on top of their processes and are using monitoring services that give a real-time view of funding positions," Norman continued.

"These are absolutely vital to helping schemes move quickly when the opportunity to de-risk arises. With schemes of all shapes and sizes competing for insurer engagement, good preparation is paramount.”

More broadly, the PPF index revealed that there were 672 schemes in deficit in February 2023, down from 706 schemes in January 2023, while the remaining 4,459 schemes were in surplus.

In line with this, the deficit of the schemes in deficit at the end of February 2023 also fell from £5bn at the end of January 2023 to £4.2bn at the end of February.

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