The aggregate surplus of defined benefit (DB) pension schemes in the UK increased by £59.5bn to £313.8bn at the end of August, the Pension Protection Fund’s (PPF) 7800 Index has revealed.

This was based on total assets of £1,565bn and liabilities of £1,251.2bn, with the funding ratio also up from 118.2 per cent to 125.1 per cent over August.

The index also revealed a fall in the number of schemes in deficit, as of the 5,215 schemes in the index, around 1,134 schemes were in deficit, down from 1,490 at the end of July, and 4,081 were in surplus.

As a result, the aggregate deficit of the schemes in deficit had also fallen as of the end of August 2022, from £29.8bn to £14.bn.

PPF chief finance officer and chief actuary, Lisa McCrory, attributed the improvements in funding levels to an "unprecedented" rise in bond yields last month.

“This was mainly a result of the Bank of England’s forceful approach to tackling inflation, their plans to sell off gilt holdings, and expectations that the new Prime Minister’s programme of tax cuts and energy market intervention will cause a material increase in the UK’s borrowing," she continued.

“We’ve not seen an increase in bond yields like this since January 2009, and the overall increase since November 2021 has more than doubled the largest previous increase in yields since the Bank of England gained independence in 1998.

“While the near-term economic outlook is highly uncertain, the PPF remains in a strong financial position and is well positioned to weather this period of uncertainty irrespective of how scheme funding and insolvency rates evolve in the future.”

Adding to this, Broadstone senior actuarial director, Jaime Norman, suggested that while it may be tempting to "continue chasing further gains", employers and trustees should be considering if changes are needed to bank the gains seen to date.

“With funding improvements against a backdrop of high short-term inflation, scheme sponsors may expect to see an increase in focus on pension increases," Norman continued.

"In particular, those schemes that only pay statutory pension increases could see requests from trustees and members for one-off discretionary increases.

“Any additional discretionary pension increase will have a financial impact on the scheme and scheme sponsors should be clear on how this will impact its long-term plans for the scheme.

"Employers may want to proactively raise this with trustees and work with trustees to manage how this is communicated to members.”

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