The aggregate surplus of defined benefit (DB) schemes in the UK increased by £7.3bn during July to £271.3bn, as falling liabilities outweighed a decline in asset values, the latest figures from the Pension Protection Fund (PPF) have shown.

The PPF’s 7800 Index showed that the aggregate funding ratio rose by 1.9 percentage points from 131.1 per cent in June to 133 per cent, the highest level recorded since July 2023.

Total scheme assets fell by 1.7 per cent during the month, from £1.113trn to £1.093trn, while total liabilities declined by 3.1 per cent, from £848.6bn to £822bn.

The aggregate deficit of schemes in deficit also fell slightly, from £21.8bn to £21.6bn.

PPF acting chief actuary, Aaron Pang, noted that positive equity market performance was offset by rising gilt yields during the month, warning that a resumption of hostilities in the Middle East "increased concerns" about an inflation shock.

“Falling bond prices, which drove gilt yields higher, led to a reduction in both asset and liability values across the PPF eligible universe, reflecting DB schemes’ significant allocation to bonds," he continued.

“Overall, across the eligible universe, funding levels improved as the 3.1 per cent fall in liability values was greater than the 1.7 per cent drop in assets.

“This resulted in a stronger aggregate surplus of £271.3bn and a funding ratio of 133 per cent - the highest recorded since July 2023.”

Broadstone actuarial director, Sarah Elwine, added that schemes continued to benefit from historically strong funding levels.

“As we head deeper into the second half of the year, trustees will be evaluating how the conflict in the Middle East continues to impact expectations over the future trajectory of interest rates," she said.

“While competition remains intense in the de-risking market, many schemes may look to capitalise on the strength of their funding levels to secure an insurance solution that protects members’ benefits.

“However, there is continued endgame optionality for trustees, especially in regard to how they utilise surpluses, which may encourage some schemes to run on.”

Meanwhile, Gallagher managing director, UK wealth consulting, Vishal Makkar, argued that the figures reflected both a strong funding environment and a competitive risk transfer market.

He also pointed to the PPF’s current consultation on section 179 assumptions as evidence of changing market conditions, with proposed changes to discount rate and longevity assumptions intended to bring valuations more closely into line with current buyout pricing.

Makkar said stronger funding positions were also shifting the debate towards the role DB schemes could play beyond securing member benefits, particularly as trustees and sponsors considered future flexibilities for surplus.

“Although a buyout will remain a desirable outcome for some schemes, it is not the only option," he continued.

“Schemes with strong governance and sponsor support may consider running on and retaining greater flexibility on where and how they choose to invest.”

He added that trustees should ensure any decisions remained evidence-led and focused on achieving the best outcomes for members.

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