PPF 7800 Index shows surplus and funding improvements

The aggregate surplus of the 5,318 schemes covered by the index is estimated to have increased to £99bn at the end of June from £94.6bn at the end of May, while the funding ratio rose to 105.8 per cent from 105.6 per cent over the same period.

There were 2,424 schemes in deficit and 2,894 in surplus. Schemes in deficit at the end of June 2021 made up 45.6 per cent of the total, a marked improvement from the same time last year, where they made up 63.8 per cent.

There was a slight decrease in the total deficit, sitting at £117.7bn at the end of June compared with £117.8bn at the end of May.

Total assets were just over £1.8tn and total liabilities were £1.7bn.

Lisa McCrory, the PPF’s chief finance officer and chief actuary, said: “There’s been very little change in the funding position in June, with the funding ratio increasing by 0.2 per cent to 105.8 per cent, due to an increase in the value of global equities.”

She added: “2,424 of the 5,318 UK defined benefit pension schemes are currently in deficit, though the total shortfall fell slightly from £117.8bn to £117.7bn, meaning the total risk we’re currently exposed to is broadly unchanged.”

Vishal Makkar, head of retirement consulting at Buck, noted the “clear contrast” between the figures from June 2021 and those from June 2020.

“The improvement in funding positions reflects both the changes in the PPF’s actuarial assumptions, as well as the more positive economic outlook for the country, which has followed the rollout of the UK’s vaccine programme,” he said.

“There is, however, still a great deal of uncertainty for scheme sponsors and particularly those in industries such as travel, hospitality and the charity sector. The outlook for both sponsors and members in these industries could well worsen again if coronavirus cases continue to rise in the UK, leading to a return to any lockdown measures.”

Sion Cole, head of UK fiduciary business at BlackRock, likewise felt it was “reassuring to see the continued growth in pension scheme funding ratios”, adding that the “continued steady momentum is an indicator that markets have stabilised following last year’s volatility and that pension schemes continue to bolster their funding levels”.

“The broadening economic restart, coupled with global central banks’ resolve to maintain easy financial conditions, keeps us moderately pro-risk,” he continued. 

“We favour equities over credit and government bonds on both a strategic and tactical investment horizon. We see the US and UK leading the developed world’s economic restart — with the euro area catching up — powered by pent-up demand and sky-high excess savings.

“The huge growth spurt will be transitory, in our view. This is because a restart is not a recovery: the more activity restarts now, the less there will be to restart later.”