PPF urges trustees to plan for funding and risk changes

The aggregate surplus of the 5,215 defined benefit schemes monitored by the pensions lifeboat fund increased by £60.7bn in September, standing at £374.5bn, which compares with £313.8bn in August.

Section 179 liabilities, the level of assets needed to secure PPF-level benefits with an insurer, were 134.8 per cent funded in September, up from 125.1 per cent in the previous month.

By the end of the month, total assets in DB schemes stood at £1.45tn, while total liabilities were £1.1tn. There were 746 schemes in deficit and 4,469 schemes in surplus, the PPF stated.

The aggregate shortfall of the schemes in deficit at the end of September was £5.3bn, down from £14.3bn in the previous month.

PPF chief finance officer and chief actuary Lisa McCrory noted that “last month was likely to have been very challenging for many DB schemes operationally”.

“However, we expect that the impact of rising gilt yields will have had a positive impact on scheme funding, and that over 80 per cent of schemes are now fully funded on our s179 basis with a combined deficit of just over £5bn, down from £14bn at the end of August,” she said

Nevertheless, McCrory anticipated that “many schemes will have seen a change in their hedging positions”.

The Bank of England announced on September 28 a £65bn bond-buying programme in an attempt to stabilise markets, after falling government bond prices prompted collateral calls for DB schemes.

McCrory added: “While DB liabilities have fallen, a high interest and inflation environment could put further pressure on some employers.

“It is important that trustees understand how their funding and risk profile has changed and have contingency plans in place.”

Despite the positive figures, Broadstone senior actuarial director Jaime Norman said the reported surplus might be “adjusted downwards once data becomes available on liability-driven Investment funds, which make up a significant proportion of UK pension scheme assets”.