The aggregate surplus of UK defined benefit (DB) pension schemes in the Pension Protection Fund (PPF) 7800 Index increased to £475.5bn in July, up from £473.6bn in June.

Both total scheme assets and total liabilities rose during the month, with assets increasing to £1,455.9bn and liabilities rising to £980.4bn.

Despite increases in the aggregate surplus, assets and liabilities, DB schemes’ average funding ratio fell from 149.4 per cent in June to 148.5 per cent in July.

At the end of July, there were 461 schemes in deficit and 4,589 schemes in surplus.

Meanwhile, the scheme deficit at the end of the month was £3.4bn, down from £3.5bn at the end of June.

Commenting on the figures, PPF chief actuary, Shalin Bhagwan, said: “This month, both liabilities and assets rose as softening economic data raised confidence that the US Federal Reserve and Bank of England would soon follow the European Central Bank in cutting policy rates, causing risk-free yields to fall.

“However, the proportionate rise in assets was outpaced by the proportionate rise in total liabilities, leading to a small decrease in the estimated funding ratio from 149.4 per cent at the end of June 2024 to 148.5 per cent.

Despite this, Bhagwan stated: “The aggregate surplus of eligible DB schemes was estimated to have increased over the month to £475.5bn at the end of July 2024, from a surplus of £473.6bn at the end of June 2024, while the deficit of the schemes in deficit is estimated to have fallen by £100m to £3.4bn.”

Gallagher managing director, Vishal Makkar, added that in July the overall aggregate surplus of DB schemes showed signs of stability, buoyed by the end of the general election and its associated uncertainties.

“During this period, it is the responsibility of the trustees to ensure their schemes are fit for an endgame option, especially during such a competitive time in the insurance company buyout market.”

He noted that timelines could “accelerate quickly”, meaning that trustees and sponsors must collaborate to gather the correct support so their scheme can successfully meet its long-term objective.

“The final DB funding code is another pivotal milestone for these schemes, allowing them to plan with greater certainty after a prolonged wait,” he continued.

“The final code offers some increased flexibility, and many schemes will need strategies to avoid trapped surpluses and tailor their funding and investment plans to their specific circumstances.”

Broadstone actuarial director, Sarah Elwine, stated: “The figures largely do not take account of the Bank of England’s first rate cut in four years and the burst of market turbulence following the Fed’s rate hold and weaker than expected labour figures.

She explained this was a reminder to trustees and scheme managers that market volatility remains present especially as economies plot a route to lower rates.

“In a falling yield environment, schemes should be reviewing their hedging ratio and even considering introducing hedging, where perhaps they have resisted previously,” Elwine added.

“Now is a good time for trustees and employers to leverage improved funding positions and also consider the impact of the regulator’s new funding code to agree on longer-term plans.”

This article was first published on our sister title, Pensions Age.

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