The March 2023 PPF 7800 index estimates that the aggregate surplus of the 5,131 schemes it covers has decreased over the month to £359.3bn, from a surplus of £381.4bn at the end of February, a fall of almost 6 per cent.
The funding ratio decreased to 133.2 per cent from 137 per cent over the same period. Total assets were £1.44tn and total liabilities were £1.08tn.
There were 4,355 (82 per cent) schemes in surplus. However, the total of the 776 schemes (18 per cent) of schemes in deficit at the end of March 2023 was £5.7bn, an increase of more than a third (35.7 per cent) from £4.2bn at the end of February.
Lisa McCrory, chief finance officer and chief actuary at the Pension Protection Fund, said: “The collapse of SVB Bank and the forced merger of CSFB and UBS created a flight to quality demand for government bonds and increased markets’ expectations regarding the likelihood of a recession later this year or in 2024. That pushed government bond yields lower during March, increasing the discounted value of scheme liabilities.
The significant improvements in funding levels seen throughout 2022 have been partially unwound by falling gilt yields over March, driven by the banking crisis.
Charlotte Jones, XPS Pensions Group
“Asset values will have risen less quickly as market interest rates fell, meaning that funding ratios decreased overall.”
Different numbers, but same direction
Meanwhile, XPS Pensions Group has estimated that the aggregate surpluses of UK pension schemes has more than halved over March to £25bn. Fund levels worsened after a fall in long-term gilt yields of around 0.3 per cent led to an increase in the value of liabilities.
Scheme assets increased over the month, partially offsetting these liability increases, as a result of many schemes’ hedged investment strategies,.
Equity markets’ decline caused partly by the banking crisis has had a detrimental impact on schemes’ overall funding positions. XPS Pensions Group data suggests that UK pension schemes’ funding positions fell by around £43bn against long-term funding targets.
Based on assets of £1.477tn and liabilities of £1.452tn, the aggregate funding level of UK pension schemes on a long-term target basis was 102 per cent as of March 30 2023.
XPS Pensions Group senior consultant Charlotte Jones said: “The significant improvements in funding levels seen throughout 2022 have been partially unwound by falling gilt yields over March, driven by the banking crisis.
“This shock to the market shows that the volatility seen over 2022 looks set to continue through 2023. Any schemes without significant hedges will have seen plunging funding levels, rewarding those trustees that implemented derisking investment strategies to lock in stronger funding positions.”
Funding buyoant, but scam risk remains high
In February, XPS Pension Group’s Transfer Value Index fell by around 4 per cent to £168,000, the lowest month-end value since the index was first published in June 2016.
Long-term inflation expectations have been largely stable over recent months, with the decrease primarily due to a steady rise in gilt yields throughout February.
The XPS Transfer Activity Index increased only slightly during the same month, showing an annualised rate of 42 members per 100,000 transferring out of the current scheme to an alternative arrangement. This is in line with experience of the past year, suggesting transfer rates are stabilising.
However, 92 per cent of cases reviewed by the XPS Scam Protection Service in February raised at least one scam warning flag. This is down slightly against the previous three months, but the index has held above 90 per cent since June 2022.
