Funding levels improved again in March, PPF data show, helping DB schemes to finish the quarter in a very strong position.
The PPF’s 7800 Index of DB schemes showed an increase of more than £10bn in the aggregate surplus over the course of the month, finishing the first quarter of the year with an overall funding ratio of more than 146% across the 5,050 schemes in the index. This compared to 134% a year earlier.
The improvement came against a backdrop of central banks rethinking their interest rate policies as indicators show inflation may be coming down.
Total assets amounted to £1.4trn at the end of March, while liabilities totalled £979bn, the PPF reported.
In the space of 12 months, the number of schemes in deficit has fallen from 799 to 497.
Sion Cole, head of UK fiduciary business at BlackRock, said: “A combination of greater economic resilience and stickier inflation than initially predicted mean markets have started to price rate cuts much closer to our expectations. Nevertheless, gilt yields compressed further during March relative to treasuries – but remain close to record highs.”
The improvement in funding was a “bellwether for the positive funding environment”, Cole said, “as many defined benefit pension schemes continue to shore up their positions and benefit from higher gilt yields”.
He continued: “The Bank of England is in no rush to cut rates but has indicated that things are moving in the right direction for future cuts, similarly we expect the Fed to begin rate cuts in the second half of the year.
“Investors have generally embraced a more positive macroeconomic outlook. However, in the short-term, we believe that this higher cost of capital will continue to shape markets and many schemes’ allocation strategies.”
Sarah Elwine, actuarial director at Broadstone, said: “The dramatic improvement in the funding environment over the last few years has given schemes a chance to knock on new doors, and so trustees should be proactive and well-advised in their decision-making process.”
She cited the variety of options available to trustees on top of a bulk annuity transaction, including commercial consolidators and more flexibilities regarding running on and releasing surplus assets.
Charlotte Fletcher, business development actuary at Standard Life, part of Phoenix Group, said the PPF’s latest data meant the de-risking market would likely “maintain strong activity as schemes look to secure members’ benefits and lock in funding gains”.
Further reading
WPC recommends changes to governance, surplus rules (26 March 2024)
What can DB schemes do with funding surpluses? (26 February 2024)
