The aggregate surplus of defined benefit (DB) pension schemes increased from £455.5bn at the end of March 2024 to £458.3bn at the end of April 2024, according to the Pension Protection Fund (PPF) 7800 Index.

Based on total assets of £1.398tn and total liabilities of £939.7bn, the index showed that the funding ratio for the 5,050 DB schemes in the index increased from 146.5 per cent at the end of March 2024 to 148.8 per cent in April.

“These changes resulted from a 4 per cent fall in liability values – largely driven by a sharp rise in government bond yields – which offset a 2.5 per cent fall in assets held across the eligible universe," PPF chief actuary, Shalin Bhagwan, explained.

However, despite the aggregate funding improvements, the index showed that the number of schemes in deficit has also risen, with 505 schemes in deficit in April up from 497 in March, while the remaining 4,545 schemes were in surplus.

There was also a rise in deficit of the schemes in deficit, up from £3.4bn at the end of March 2024 to £3.8bn at the end of April 2024.

Bhagwan suggested that this could reflect the higher proportion of assets invested in classes that saw the largest reductions in value over the month, particularly bonds.

Indeed, Broadstone senior actuarial director, Jamie Norman, warned that some schemes may be at the margins of generating enough income to meet their cashflow requirements.

“Investment markets continue to second-guess when the Bank of England will cut rates and by how much while we have also seen corporate bond spreads tighten recently, meaning it is getting harder to generate investment income," he continued.

“Many schemes will have banked the easy wins that came with the upswing in gilt yields 18 months ago and so now might be time to focus on other risks such as growth asset volatility and currency hedging, especially those schemes with a view to the long term.

“Irrespective of the long-term objective of trustees and sponsors, many priorities remain the same: manage funding and investment risk to reduce volatility, ensure good quality administration to keep members happy, and appoint advisers that provide value for money to keep costs down.”

Adding to this, Standard Life business development actuary, Charlotte Fletcher, agreed that while funding levels remain “encouraging”, the industry could see “some volatility” in scheme funding positions, with the market now anticipating interest rate cuts in the second half of the summer following indications from the Bank of England.

“This will be a new consideration for trustees who are exploring locking in favourable positions through bulk annuity transactions,” she continued.

“For schemes looking to secure their members’ benefits with a buy-in, thorough preparation before approaching the insurance market remains vital, as 2024 is expected to be another record-breaking year.”

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