The net surplus of the UK's defined benefit (DB) schemes remains "strong" at £214bn, the Pension Protection Fund's (PPF) latest Purple Book has revealed, while the proportion of assets held in annuities has surged to almost 13 per cent, the highest level ever recorded.

According to the Purple Book, now in its 20th year, the aggregate funding position of DB schemes on a section 179 basis, as at 31 March 2025, showed a net surplus of £214bn, similar to last year’s £219bn.

The funding ratio also increased from 123 per cent to 125 per cent, driven primarily by higher gilt yields reducing liability values.

At the same time, the size of the DB universe continued its gradual decline, as the number of eligible DB schemes shrank from 4,974 schemes to 4,840 as schemes wound up, merged, or entered PPF assessment.

Asset allocations supported the picture of the DB space as a mature and de-risked universe, revealing that schemes hold 71 per cent of their assets in bonds and bond proxies, similar to the 70 per cent last year, while the equity proportion remains steady at around 15 per cent.

The long-term shift away from UK equities also continued, with allocations now below 5 per cent of total equity holdings, while the proportion of assets held in annuities has risen sharply to almost 13 per cent.

Marking the highest level ever recorded, this reflects the recent higher volumes of buy-in transactions among schemes approaching buyout.

These funding improvements could mean there is scope for further change, as the PPF also included further analysis of a scenario where s179 liabilities make an allowance for increases to pensions accrued before 6 April 1997, reflecting the recent government announcement at the Budget.

This showed that allowing for these ‘pre-97’ increases would increase universe liabilities on a s179 basis by around 12 per cent, but would have no direct impact on the more relevant funding measures for most schemes such as Technical Provisions (TPs) or buyout.

"This universe has significantly matured over the past two decades and this is increasingly reflected in asset allocations which, in turn, explains the stability over the past year," PPF chief actuary, Shalin Bhagwan, said.

However, Bhagwan noted that while section 179 funding levels remain robust, the £47.2bn deficit on a buyout basis, despite marking a significant fall from £69.5bn last year, is a reminder that as more schemes approach their endgame, the need for thoughtful long-term planning remains vital.

Indeed, the update showed that despite sector-level improvements, scheme-level challenges remain, as the proportion of schemes in deficit on an s179 basis was 26 per cent in March 2025.

The PPF pointed out that the landscape also remains highly fragmented, revealing that 80 per cent of schemes have fewer than 1,000 members yet account for only around 10 per cent of assets and liabilities, while schemes with more than 5,000 members hold almost three quarters of total assets despite representing just 6 per cent of schemes.

Claims on the PPF have also increased, as in the year to 31 March 2025, 22 new schemes entered PPF assessment.

Although this is a similar number to last year’s 18 new schemes, the total value of the year’s claims of £32m up from £14m in the year before.

Broadstone chief actuary, David Hamilton, said, that while the update overall shows "a picture of funding stability, with the continuation of many familiar trends", some may be surprised by the proportion of schemes still in deficit.

"This helps explain why the PPF continues to be cautious around potential risks, notwithstanding the very healthy picture across the defined benefit universe as a whole," he stated.

However, the PPF emphasised that as at 31 March 2025, it had sufficient reserves to meet its Financial Resilience Test, and has a high likelihood of this also being true for the next three years.

Indeed, despite the challenges, Brightwell CEO, Morten Nilsson, said that the update "paints a cautiously optimistic picture of the UK defined benefit (DB) landscape".

However, he also emphasised the need for more consideration of run on and DB surplus options, arguing that buyout "is not the only game in town and trustees should be sure to kick the tyres on all options".

“Changes to legislation to make it easier for surplus to be returned to sponsors will provide well-run schemes with greater incentive to run on, or at least run on for an extended period," he stated.

“The key to successful run on is to be intentional, making sure you have the right partners to deliver on the scheme’s goals over the long-term.”

  

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