The UK defined benefit (DB) pension scheme surplus fell by £5bn to £245bn on a buyout basis in November, according to analysis from PwC.

This reduction follows the record-high surplus of £250bn on a buyout basis recorded in October.

While asset values increased from £1,365m to £1,420m in November, this was outweighed by the increase in liabilities, which rose from £1,115m to £1,175m.

The funding ratio also fell slightly during the month, from 122 per cent to 121 per cent.

PwC noted that the recent strong funding levels meant that schemes are increasingly simplifying their investment strategies, which is driving significant consolidation of scheme assets.

“This month was far from quiet on the pensions front, with a raft of ambitious proposals set out in the Autumn Statement,” said PwC head of pensions funding and transformation, John Dunn.

“Funding levels, on the other hand, have remained broadly unchanged, with DB schemes remaining in a strong surplus position.

“It’s worth noting that, after the change to the surplus refund tax announced in the Autumn Statement from 6 April next year, the value of the net buyout surplus to scheme sponsors has just increased by up to £25bn.”

Meanwhile, XPS Pensions Group estimated that the aggregate surplus of UK DB schemes fell by £14bn against long-term funding targets to £168bn in November.

Its DB:UK Funding Tracker found that while assets rose to £1,445bn, liabilities also increased to £1,277bn.

This translates to an aggregate funding level of 113 per cent, down by 2 percentage points compared to the previous month.

A 0.4 per cent fall in long-term gilt yields was the primary driver of the rise in liabilities, which reduced scheme funding levels, while assets rose due to schemes’ hedging strategies and positive growth returns.

“With pension scheme surpluses at near record levels, the Chancellor’s announcement that surplus refund taxation will fall from 35 per cent to 25 per cent is welcome news to scheme sponsors looking to run-on their schemes,” commented XPS Pensions Group partner, Danny Vassiliades.

"The government is expected to launch a public consultation to develop these ideas, but trustees and sponsors of DB pension schemes should consider whether these proposals could impact their long-term targets and if running-on schemes will provide the most benefit to members and sponsors.”

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