Charlotte Fletcher, Business Development Actuary at Standard Life: "Funding levels for UK defined benefit pension schemes saw another increase in April. The aggregate section 179 funding ratio for the 5,050 schemes in the PPF 7800 Index now stands at 148.8 per cent at the end of April 2024, compared to 146.5 per cent at the end of March 2024.
“Funding levels remain encouraging after the PPF’s latest update. With the market now anticipating interest rate cuts in the second half of the summer following indications from the Bank of England last week, we could see some volatility in scheme funding positions. This will be a new consideration for trustees who are exploring locking in favourable positions through bulk annuity transactions.
“For schemes looking to secure their members’ benefits with a buy-in, thorough preparation before approaching the insurance market remains vital, as 2024 is expected to be another record-breaking year.”
Jaime Norman, Senior Actuarial Director at leading independent consultancy Broadstone, commented: “Defined benefit pension scheme funding remained stable through April, registering a slight increase in the aggregate surplus.
“Investment markets continue to second-guess when the Bank of England will cut rates and by how much while we have also seen corporate bond spreads tighten recently, meaning it is getting harder to generate investment income. This suggests that some schemes may be at the margins of generating enough income to meet their cashflow requirements.
“Many schemes will have banked the easy wins that came with the upswing in gilt yields 18 months ago and so now might be time to focus on other risks such as growth asset volatility and currency hedging, especially those schemes with a view to the long term.
“Irrespective of the long-term objective of trustees and sponsors, many priorities remain the same: manage funding and investment risk to reduce volatility, ensure good quality administration to keep members happy, and appoint advisers that provide value for money to keep costs down.”
PPF 7800 Index
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