Charlotte Fletcher, Business Development Actuary at Standard Life, part of Phoenix Group: "Funding levels for UK defined benefit pension schemes experienced a marginal decrease in August. The aggregate section 179 funding ratio for the 5,050 schemes in the PPF 7800 Index now stands at £475 billion at the end of August 2024, compared to £475.5 billion at the end of July 2024.
“Despite the small decrease in the surplus and funding ratio, likely a result of the Bank of England’s decision to cut interest rates in light of controlled inflation, UK pension schemes remain in a strong position. Looking ahead, trustees and sponsors will focus on aligning their funding strategies and long term objectives with the latest TPR Defined Benefit funding code. Meanwhile, the de-risking and risk transfer markets are expected to remain active and resilient, with schemes continuing to explore endgame strategies and secure long-term stability.”
Sion Cole, Head of European Institutional OCIO at BlackRock, said: “The aggregate surplus of schemes saw a sight fall in August from a surplus of £475.5 billion at the end of July to £475.0 billion at the end of last month – marking the first decrease in surpluses since the start of the year and likely a reflection of broader market volatility in August. The overall strong funding picture for schemes remains strong and re-enforces the position of trustees to pivot into new opportunities, ensuring they continue to meet their obligations to members."
“Despite the small slip in funding levels, the swift market recovery in early August supported our observation that U.S. recession fears were largely overdone. The market shifts served as a reminder of the importance of maintaining a diversified portfolio, as well as highlighting the opportunities available in fixed income.
“In the UK gilt yields tightened against treasuries this month, however, the recent UK government bond auction proved that gilts continue to remain attractive as the Fed prepares to cut interest rates. In this environment, maintaining a well-balanced portfolio will be crucial to ensure schemes can hedge against inflation bounce-backs and further pockets of volatility.
Jaime Norman, Senior Actuarial Director at leading independent consultancy Broadstone, commented: “The PPF’s funding estimates for Defined Benefit pension schemes reveal that funding levels remained broadly stable in August with schemes locking in the unprecedented gains enjoyed over the last three years.
“While funding levels remain historically strong, the Bank of England’s 25 basis points rate cut at the beginning of August is a reminder to scheme managers and trustees that they could be reviewing their hedging ratio and even considering introducing hedging, where perhaps they have resisted previously
“With the continued strength in funding levels we are seeing a greater interest in alternative endgame options, including running-on. It is pleasing to see innovations in the market that are giving schemes this flexibility. Plus, for those that are looking to offload their liabilities there is increasing evidence of a ramping up of capacity, as new entrants emerge.
“Whatever strategy scheme managers choose to follow, good quality administration and a robust investment strategy remain key to its success”
PPF publish latest PPF 7800 Index figures for August 2024
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