Jaime Norman, Senior Actuarial Director at Broadstone, said: “Despite increasing macro-economic volatility through February, the pension scheme funding environment remains relatively muted with just a minor deterioration in funding levels. It is encouraging that funding positions are holding steady but with market turbulence on the march, trustees and sponsors will have to ensure they are assessing their investment strategy to ensure they are well-protected in the months to come. For schemes that can maintain a healthy funding position, the formal entrance of another insurer into the bulk annuity market – the fourth new entrant in under two years – is evidence of the growing endgame opportunities and capacity in the derisking market for well-prepared schemes.”
Alex Oakley, BPA Transaction Manager, at Standard Life, part of Phoenix Group, comments on The Pension Protection Fund’s 7800 Index March update on the latest estimated funding position for all PPF-eligible defined benefit pension schemes: Funding levels for UK defined benefit pension schemes remained stable in February. The aggregate section 179 funding ratio for the 5,050 schemes in the PPF 7800 Index now stands at 126.1 per cent at the end of February 2025, compared to 127 per cent at the end of January 2025. “Market conditions in February saw gilt yields fall slightly after a period of significant rises. The stability of scheme funding levels also indicates that schemes are continuing to manage risks effectively. For trustees, maintaining this stability will help ensure long-term security for members, as they continue to balance de-risking strategies with exploring endgame options, whether through buy-out or run-on. “Looking ahead to the upcoming Spring Statement, both the industry and trustees will be waiting to see if further details regarding the potential use of DB surpluses will be announced. In addition, it’s possible any fiscal policy changes may affect upcoming decisions around interest rates, and this could impact gilt markets and funding levels in the future. “This is important for trustees as they consider how to best manage funding positions while balancing member security. Trustees assessing their endgame options will need to carefully consider the evolving DB pension landscape and wider economic environment to protect member benefits, and we continue to work closely with schemes in navigating these developments to ensure positive outcomes for members and sponsors.”
Vishal Makkar, Managing Director, UK Wealth Consulting at Gallagher: Although the latest PPF 7800 Index figures show a slight dip in the aggregate surplus, most DB schemes are in a healthy financial position. Thanks to rising gilt yields over recent years, many DB schemes are finding themselves in a surplus and the data reaffirms their strong financial footing. This stability is sparking renewed conversations around run-off strategies and surplus extraction, but most importantly, schemes remain well-placed to deliver solid returns for members. In the current climate, trustees must carefully consider the options at their disposal. If the objective is running on, they may explore returning value to the sponsor, boosting member benefits, or even supporting a related defined contribution (DC) arrangement. Dealing with surplus funds is nothing new, but taking full advantage of them isn’t always easy. The government is increasingly focused on using these funds to fuel economic growth, while ensuring members' benefits remain protected. As stewards of members’ financial futures, this is where the role of a trustee will be critical. Engaging proactively with sponsors will be pivotal, but until we get further details in the government’s response to the consultation on options for DB schemes in the Spring, the way forward for some trustees may be something of a grey area.”
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