UK defined benefit (DB) pension schemes' deficits against long-term funding targets decreased by around £56bn over the month to 29 June 2022, according to XPS Pensions Group’s DB:UK funding tracker.

The tracker showed that the deficits for UK pension schemes fell from £81bn at the start of June to £25bn at the end, an almost 70 per cent reduction.

XPS attributed the improvement in deficits to rising gilt yields coupled with a fall in long-term inflation expectations.

The analysis also revealed that, based on assets of £1,583bn and liabilities of £1,609bn, the average funding level of UK pension schemes on a long-term target basis was 98 per cent, as at 29 June 2022.

Additionally, the DB:UK funding tracker estimated that it could take less than a year to reach long-term targets under the proposed new funding code rules.

According to XPS, the improvement in funding levels over June added to the roughly £250bn reduction in deficits since the start of the year and now UK pension schemes are quickly approaching full funding on a long-term target basis.

XPS Pensions Group senior consultant, Charlotte Jones, commented: “The good news that schemes are hurtling towards their long-term targets should prompt trustees and companies to review the next steps for their schemes.

“With some schemes’ seeing vast improvements in their funding positions, we are seeing preparations for buyout, reviewing hedging and investment strategies, or even revisiting the deficit recovery payments making their way onto schemes’ agendas.

"They must also not forget about the scheme members in this high inflationary environment who are likely to need more support and education from their schemes.”

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