Defined benefit (DB) pension surpluses remained broadly stable during October, registering a slight decrease, but remaining elevated compared with recent years, according to XPS Pensions Group’s latest DB:UK funding tracker.

The consultancy's tracker tool estimated that the aggregate surplus of UK pension schemes, when measured on a long-term target technical provision basis, stood at about £184bn on 31 October, which translates into an aggregate funding level of 115 per cent.

A moderate 0.1 per cent rise in long-term gilt yields led to a decrease in the value of liabilities.

A slightly higher decrease in the value of schemes’ assets, however, attributed to hedging strategies and poor performance of growth-seeking assets, means that the aggregate scheme surplus was down by £3bn, or 1.6 per cent.

When calculated on an company accounting standard basis, XPS found UK corporate balance sheets are projected to show an estimated aggregate pensions surplus of around £240bn at the end of October — an increase from £170bn registered on 31 December last year.

The consultancy suggested that based on interest rate changes and market movements to date, it expects schemes that have hedged less than 100 per cent of their accounting obligations are likely to see an improved accounting balance sheet position compared to last December.

XPS Pensions Group partner and head of accounting Simon Reddish, commented: “These figures illustrate the difference between prudent long-term funding measures, used to determine the strategic direction for many schemes, and the fair value-based balance sheet position calculated using prescribed accounting standards.

"This means that it is increasingly important for sponsors to investigate the key drivers of these differences and to understand the potential accounting impact of activities such as insurance transactions. This will avoid surprises and ensure that useful information can be provided to stakeholders.”

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