DB pension funding remains at 'near-record' levels

The aggregate surplus of the UK’s defined benefit (DB) pension schemes remained at near-record levels in March, falling slightly from £154bn to £151bn, analysis from XPS Pensions Group has revealed.

Based on total combined assets of £1,454bn and liabilities of £1,303bn, the index showed that UK DB pension schemes' funding position remained unchanged relative to long-term targets.

Indeed, the analysis showed that the aggregate funding level of UK pension schemes on a long-term target basis remained "extremely positive", at 112 per cent of the long-term value of liabilities as at 27 March 2024, unchanged since February.

This was driven by strong asset performance across both credit spreads and equities, as schemes' hedging strategies were able to offset an increase in the value of liabilities, following a fall in long-term gilt yields.

However, while pension scheme trustees and members can take "comfort" in the continued strong funding levels, XPS Pensions Group senior investment consultant, Felix Currell, argued that "it is critical that trustees remain engaged and vigilant in the running of their schemes".

“Although the requirements of The Pensions Regulator's (TPR) plans for ‘statement of strategy’ will be phased in to coincide with actuarial valuation deadlines, trustees should look to get ahead of this now by actively considering the risks they are exposed to as this will also aid them in protecting their funding positions," he said.

TPR is currently consulting on the form and content of the new statement of strategy, which will require trustees and sponsors to document their agreed long-term funding and investment strategy as well as key covenant, investment and funding risks and associated mitigations.

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