DB pension schemes have continued to improve their funding position across the month of September despite the Bank of England holding interest rates steady for the first time since late 2021, an XPS Pensions Group analysis has found. Aggregate scheme assets were also down over the month driven by schemes’ hedging strategies.
Overall, across September 2023, UK pension schemes’ funding positions have risen by c.£14bn against long-term funding targets. Based on assets of £1,421bn and liabilities of £1,252bn, the aggregate funding level of UK pension schemes on a long-term target basis was 113% as of 25 September 2023.
Despite the Bank of England’s pause to its programme of rate rises, long-term gilt yields rose by around 0.2% over the month, reducing liabilities and improving scheme funding levels.
Mark Witkin, Senior Consultant at XPS said: “There appears to be a shift in UK Government pensions policy to encourage DB schemes to run on and invest in growth. As highlighted in our recent report, our view is any role played by DB schemes in support of this policy must not risk the hard-won security of members’ benefits. Instead, DB schemes can be a source of surplus funding for investment in UK growth.
If the Government does introduce legislation that affects how surpluses can be used, then sponsors and trustees should review their ultimate objectives in the context of this shift in policy. Whilst settling benefits with an insurer may still be the right target for most schemes, there are circumstances in which running a scheme on over the long term can have a positive impact on pension scheme members and the financial success of the sponsoring employer.”
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