On the go: The aggregate surplus of the 5,318 defined benefit pension schemes potentially eligible to join the Pension Protection Fund is estimated to have decreased to £62.4bn at the end of July, from a surplus of £99bn at the end of June, the latest figures from the lifeboat fund show.
The PPF 7800 Index data show 2,600 schemes in deficit and 2,718 schemes in surplus. The aggregate scheme deficit at the end of July 2021 stood at £142.2bn, up from £117.7bn at the end of June 2021, the PPF stated.
The funding ratio decreased to 103.5 per cent from 105.8 per cent over the same time period.
Total assets were just over £1.8tn and total liabilities stood at £1.7tn.
Lisa McCrory, PPF’s chief finance officer and chief actuary, attributed the slight decrease in the aggregate funding position for schemes the PPF protects to “a fall in bond yields, which saw the funding ratio decreasing by 2.3 percentage points to 103.5 per cent”.
She noted that the increase in the number of schemes in deficit “highlights the ongoing risk to the PPF and how sensitive scheme funding is to yield changes”.
Despite the slight deterioration in funding levels, the picture is a relatively positive one for the UK’s DB schemes, according to Vishal Makkar, head of retirement consulting at Buck, who noted that the aggregate funding position remains well in surplus.
“While yields drifted downwards slightly, strong asset returns cancelled out the impact of this, as both assets and liabilities increased slightly over the course of the month,” he said.
Sion Cole, head of UK fiduciary business at BlackRock, pointed out that the decrease in the funding ratio was “not wholly surprising given the fall in bond yields”.
“However, if schemes are well hedged, funding levels should be resilient to changes in yields,” he added.
Pointing to economic uncertainty and rising volatility in global markets as new virus strains emerge in nations with much lower vaccination penetration, Cole said: “Pension funds need to act now to consolidate progress in funding positions achieved over the past year and buckle in for more volatility.”
For Makkar, the improvement in funding levels presents an opportunity for some trustees to “turn their attention to other targets”.
“The publication this week of the latest report from the Intergovernmental Panel on Climate Change has thrown the need to confront climate change to the forefront of the public conversation,” he said.
“The urgency of environmental, social and governance issues is even more pressing for schemes with more than £5bn in assets, which will be required to make new TCFD disclosures from the start of October.
“DB schemes of all sizes should see this as an opportunity to ensure that they are managing their climate risk, making appropriate plans and giving these challenges the attention they deserve.”
