The aggregate surplus of the UK’s defined benefit (DB) pension schemes against long-term funding targets fell by £28bn to £98bn in December, according to analysis from XPS Pensions Group.

It found that a fall in long-term gilt yields of approximately 0.5 per cent resulted in the value of liabilities rising from £1,277bn to £1,348bn during the month, reducing scheme funding levels.

The value of assets increased slightly in December, from £1,445bn to £1,446bn, driven by schemes’ hedging strategies and positive growth returns.

The aggregate funding level decreased from 113 per cent to 107 per cent over the month.

XPS noted that, despite the fall, the aggregate funding level of DB schemes on a long-term target basis remained extremely positive.

Commenting on the update, XPS Pensions Group partner, Danny Vassiliades, said: “Significant falls in long-term gilts yields over December following better-than-expected inflation figures and expectations among many of earlier interest rate cuts, are a stark reminder that funding can change quickly as aggregate liabilities increased by c.£80bn over the month.

“The speed of these changes indicates that schemes should continually reassess the appropriateness of their investment strategies, with a particular focus on ensuring they are suitably protected against any potential fall in gilt yields.

“This is particularly important for schemes looking to protect their current strong funding levels, including those in which buyout is a realistic short-to-medium-term objective.”

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