UK defined benefit (DB) pension schemes' funding positions improved by £36bn against long-term funding targets in January 2024, research from XPS Pensions has revealed.

XPS Pensions Group’s analysis showed that the aggregate surplus of UK DB pension schemes on long-term targets stands at around £149bn, based on assets of £1,416bn and liabilities of £1,267bn.

The aggregate funding level of UK pension schemes on a long-term target basis also remained "extremely positive", at 112 per cent of the long-term value of liabilities.

XPS explained that a rise in long-term gilt yields of around 0.5 per cent led to a decrease in the value of liabilities, increasing scheme funding levels, although this was partially offset by aggregate scheme assets decreasing over the month, driven by schemes’ hedging strategies.

XPS Pensions Group partner, Danny Vassiliades, stated: “Aggregate pension scheme surpluses increased significantly over January, with higher-than-expected December inflation figures tempering expectations about when the Bank of England will begin highly-anticipated rate cuts.

“With upcoming cuts in mind, schemes should be well hedged to protect against increases in the value of their liabilities.

“Whilst the bank’s announcement to maintain interest rates at 5.25 per cent was widely expected, with significant market interest in predicting the first of the expected rate cuts, pension scheme funding may continue to experience some volatility in 2024 as expectations continue to shift.”

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