The deficits of defined benefit (DB) pension schemes decreased by around £2bn against long-term funding targets to £54bn in July, XPS Pensions’ DB:UK funding tracker has shown.

According to the tracker, assets stood at £1,685bn and liabilities were £1,739bn, as at 28 July 2022, and the aggregate funding level on a long-term target basis was 97 per cent.

XPS estimated that the average pension scheme would need an additional £5,000 per member to ensure they can pay their pensions in the long term.

Inflation was found to be continuing to have large impact on scheme liabilities, although a slight fall in long-term inflation expectations contributed to a marginal improvement in funding levels over July, despite a small decline in gilt yields.

XPS noted that the latest increase added to the improvements in long-term positions that have been seen during 2022, estimating that cumulative improvements were now in excess of £270bn.

Furthermore, growth assets received a “small boost” at the end of July amid reports that the Federal Reserve would keep an ‘open mind’ on increasing interest rates in September.

“Whilst July has seen pension scheme liabilities stay fairly flat compared to recent months, hedging strategies continue to be under stress,” commented XPS Pensions Group senior investment consultant, Felix Currell.

“Many schemes that use leveraged liability-driven investment products have been required to post significant collateral, bringing forward the need for trustees to consider the liquidity position of their schemes.

“The threat of global recession still looms over growth markets, however it was interesting to see the positive response in US equities in particular following the Fed’s announcements.”

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