The aggregate surplus of defined benefit (DB) pension schemes fell to £226.2bn at the end of December 2024, down from £235.5bn at the end of November, the Pension Protection Fund’s (PPF) 7800 Index has revealed.

The update also showed that both liabilities and asset values fell over the month, as total assets stood at £1,105bn in December, compared to £1,150.5bn at the end of November, and total liabilities were £878.8bn, down from £915bn in November.

Meanwhile, the funding ratio stayed the same, standing at 125.7 per cent at the end of December 2024.

The index also showed that 1,294 schemes were in deficit in December 2024, but the deficit of these schemes had risen slightly from £22.8bn at the end of November to £25.6bn at the end of December.

PPF chief actuary, Shalin Bhagwan, said this month’s index showed the impact of rising bond yields on estimated pension scheme asset and liability values, both of which decreased by 4 per cent through December.

He credited this increase to stickier inflation and a signal from the US Federal Reserve that they will be slower to cut rates in 2025, as well as equities falling slightly over the same period.

“These movements have led to a £9.3bn decrease in the estimated aggregate surplus, albeit with the funding ratio holding steady at 125.7 per cent, while the deficit of schemes in deficit (as measured on an s179 basis) grew slightly, to £25.6bn,” he added.

“As schemes mature or reach their end game, their prudent approach to interest rate and inflation hedging may mean they are increasingly overhedged on a s179 basis.”

Broadstone senior actuarial director, Jaime Norman, said this update completed a “relatively steady” year for DB pension scheme funding in 2024 despite a small drop in funding levels but noted the year ended with a “big spike” in gilt yields with “significant” market volatility continuing into 2025.

“These movements could be good for schemes that are still poorly funded or with low levels of hedging, but it is likely to be unsettling for pension scheme members,” Norman added.

“The job for trustees will be managing investment risk and monitoring employer covenants to ensure the long-term security of member benefits.

“The insurance bulk purchase annuity market is likely to see significant demand from pension schemes again in 2025 as employers look to de-risk and as more entrants and superfunds offer increasing levels of choice.”

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