Charlotte Fletcher, Business Development Actuary at Standard Life, part of Phoenix Group, comments: "Funding levels for UK defined benefit pension schemes saw a slight improvement in March. The aggregate section 179 funding ratio for the 5,050 schemes in the PPF 7800 Index now stands at 146.5 per cent at the end of March 2024, compared to 146.1 per cent at the end of February 2024.
“The pension scheme buy-in and buyout market continues to be extremely busy, with volumes reaching nearly £50bn in 2023. For trustees looking to secure their scheme members’ benefits, it is important to carefully plan their approach. Managing any illiquid assets, for example, is highlighted as a key consideration for schemes in our new research report, with two-thirds of employee benefit consultants confirming illiquids have delayed a BPA transaction. Thorough preparation, engaging with insurers early in the process, and having high quality data, also continue to be of paramount importance.
“Looking ahead, the regulatory picture continues to evolve with the Department for Work and Pensions’ DB Funding and Investment Strategy and Amendment regulations coming into force from 6th April. However, with these latest figures highlighting how funding levels have remained strong and steady in 2024, we expect the de-risking market to maintain strong activity as schemes look to secure members’ benefits and lock in funding gains.”
Sion Cole, Head of UK Fiduciary Business at BlackRock, said: "The first quarter of 2024 has been characterised by a reassessment of interest rate cut timings and depth from the Fed, Bank of England, and European Central Bank. A combination of greater economic resilience and stickier inflation than initially predicted mean markets have started to price rate cuts much closer to our expectations. Nevertheless, gilt yields compressed further during March relative to treasuries – but remain close to record highs.
"As a result, the aggregate surplus of schemes rose from £442.3 billion at the end of February to £455.5 billion at the end of March. This rise of over £10billion is a bellwether for the positive funding environment, as many defined benefit pension schemes continue to shore up their positions and benefit from higher gilt yields.
“The BoE is in no rush to cut rates but has indicated that things are moving in the right direction for future cuts, similarly we expect the Fed to begin rate cuts in the second half of the year. Investors have generally embraced a more positive macroeconomic outlook, however, in the short-term, we believe that this higher cost of capital will continue to shape markets and many scheme’s allocation strategies.”
Vishal Makkar, Managing Director, UK Wealth Consulting at Gallagher, comments: “March saw little movement in the aggregate funding level of the schemes in the PPF Index after February’s drop in liabilities. Over the past month, DB schemes have kept a level footing, with the aggregate surplus increasing modestly to a healthy £455.5 billion. The overall funding ratio has settled at 146.5 per cent and the market is enjoying a welcome spell of stability.
“As a result, many DB schemes will be tempted to rethink the endgame strategies at their disposal to take advantage of improved funding positions. However, trustees should carefully consider the potential risks and benefits of their endgame options, whether that’s a buyout, a transfer to a superfund, or running the scheme on. Staying abreast of any risks will also leave them on a stronger footing before The Pension’s Regulator plans for ‘statement of strategy’ are phased in.
“Regardless of the option they choose, schemes depend on first-class administration and strategy to steer a clear course through the next decade, which promises to be a time of profound transformation."
View the April update and see the supporting data on the 7800 Index for 31 March 2024 here: The PPF 7800 index | Pension Protection Fund.
|
