Defined benefit (DB) pension schemes finished the first half of 2025 in a strong funding position despite significant geopolitical uncertainty and asset price volatility.
The latest edition of the Pension Protection Fund’s (PPF) 7800 Index of private sector DB schemes showed an aggregate surplus of £230.5bn across the 4,969 schemes eligible for PPF coverage.
This equated to an aggregate funding level of 126.2% at the end of June on a section 179 basis. This marks a marginal improvement during the quarter, as the overall funding position at the end of March was a £215.5bn surplus or 124.7%.
The improvement came despite the past three months being overshadowed by trade disputes following the imposition of tariffs by the US at the start of April.
Shalin Bhagwan, the PPF’s chief actuary, said that while gilt market volatility had increased liabilities during June, this was outpaced by positive investment returns for all asset classes.
Sarah Elwine, actuarial director at Broadstone, said the DB sector was in “robust health”. With more than 3.600 DB schemes in surplus, Elwine said many trustee boards now had a wider range of options for securing benefits and reducing the cost to the sponsoring employer.
However, she added that there were several “unknowns” for trustees to contend with over the coming months, including ongoing tariff negotiations and a “challenging Autumn Budget”.
“This creates a difficult environment for trustees as they look to navigate through the turbulence. Investment strategies must be closely managed to achieve longer-term objectives. However, opportunities continue to emerge in the insurance market, with new options on offer and reforms making run-on a more attractive route for many schemes.”
Charlotte Fletcher, business development actuary at Standard Life, added: “This modest improvement over the past month continues a broadly positive trend in 2025, with many schemes maintaining their strong funding position.
“However, geopolitical developments continue to drive some market uncertainty, and trustees may be looking to take a more proactive stance. With bulk annuity pricing remaining at competitive levels, now may be an opportune moment to lock in gains, particularly for schemes that have achieved their long-term funding objectives.”
Pension Schemes Bill to change how surpluses are viewed
The second quarter of 2025 has also brought the promise of profound change to the UK’s pensions sector with the introduction of the Pension Schemes Bill. This contains proposals to allow DB pension scheme trustees to alter their scheme rules to allow the release of surplus funds in certain circumstances, to benefit members, the sponsor, or both.
“As surplus conversations evolve, trustees must balance opportunity with caution, ensuring all decisions remain grounded in member security, transparency, and their long-term fiduciary duties.”
Vishal Makkar, Gallagher
Vishal Makkar, managing director of UK wealth consulting at Gallagher, said the proposals “may create ripple effects across the market, unlocking new investment opportunities while also creating new liabilities in the event of mismanagement”.
He added: “The Pensions Regulator’s guidance highlights four key priorities for trustees: saver outcomes, scale, innovation, and data quality. This new guidance expands the options available to well-funded schemes and provides much-needed clarity to trustees in this very dynamic moment.
“With further parliamentary scrutiny and potential amendments expected, trustees should take this moment to reassess their derisking timelines and member communications.
“As surplus conversations evolve, trustees must balance opportunity with caution, ensuring all decisions remain grounded in member security, transparency, and their long-term fiduciary duties.”