The aggregate surplus of the defined benefit (DB) pension schemes in the Pension Protection Fund (PPF) 7800 Index rose to £468.8bn at the end of May 2024, the pensions lifeboat has revealed.

This represents an increase of more than £10bn compared to the end of April, when the surplus was estimated at £458.3bn.

During May, DB schemes’ funding ratio also increased, from 148.8 per cent to 149.4 per cent.

The funding improvement was driven by growth in schemes’ assets, which rose from £1,398bn to £1,418bn in May.

However, this was partially offset by liabilities also increasing during the month, from £939.7bn to £948.8bn.

The number of schemes in deficit fell from 505 to 476 over the month, while the number of schemes in surplus rose from 4,545 to 4,574.

Furthermore, the deficit of the schemes in deficit fell from £3.8bn to £3.6bn over the same period.

As the PPF is a public body, it is required to follow government guidelines for media and event activities during the run up to the general election, and therefore it did not issue a statement alongside its funding update.

Commenting on the update, Broadstone actuarial director, Sarah Elwine, said: “The shock announcement of a general election towards the end of May did little to alter the current positive stability of DB pension scheme funding.

“A new government is likely to inherit a funding environment characterised by surplus when it comes to office in July, following two years of drastic improvements as interest rates rose. This steadiness in the market should help drive long-term, cross-party policymaking that supports well-funded schemes as well as those where there is still work to be done.

“Whilst the election campaign has paused progress in creating a public consolidator, we hope that once the new government is formed, these plans can continue, providing additional end game options for smaller pension schemes.

“Despite the uncertainty of the election, it is important that trustees and sponsors continue to prioritise the same long-term objectives. This includes managing funding and investment risk to reduce volatility, ensuring good quality administration to keep members safe and happy, and appointing advisers that provide value for money.

Standard Life business development actuary, Charlotte Fletcher, added: “This latest PPF update shows funding levels for DB pension schemes remain robust, with many schemes in a position to look to de-risk with an insurer.

“However, with the European Central Bank cutting interest rates last week, pressure is mounting for the Bank of England to follow suit which may cause a period of fluctuation in scheme funding positions. The upcoming UK general election is also adding to this degree of uncertainty as schemes look ahead to what the future might bring.

“The risk transfer market remains busy and is showing no signs of slowing, and with increased affordability, insurance remains the primary de-risking solution for many trustees and sponsors. Against this backdrop, diligent preparation, as well as early insurer engagement, remains vital in order to successfully navigating this busy market and ensure the best outcome for members’ benefits.”

Also commenting on the update, BlackRock head of European institutional OCIO, Sion Cole, noted that surpluses have increased by over £40bn since the end of January.

"The rise in May continues the trend of positive funding, re-enforcing the opportunity for managers and trustees to shore up their positions," Cole said.

“In this environment, schemes are better positioned to explore investment opportunities, opening the door to potentially return surplus funds and improve member benefits.

“As inflation stands within a whisker of the 2 per cent target, we expect the Bank of England to follow suit with the ECB’s decision last week to lower rates. Our base case remains for the Bank of England to cut rates this year, likely following the July election – presenting opportunities for UK gilts.

"Scheme trustees will need to navigate uncertainty as they consider their risk profile and long-term objectives to ensure funding and investment decisions are correctly aligned.”

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