Charlotte Fletcher, Business Development Actuary at Standard Life, part of Phoenix Group: “Funding positions for UK defined benefit schemes remained encouragingly stable at the end of June. The aggregated surplus of the 5,050 schemes in the PPF 7800 index increased from £468.6 billion at the end of May, to £473.6 billion at the end of June. The aggregate section 179 funding ratio for the 5,050 schemes remained at 149.4 per cent at the end of June, compared to the same figure at the end of May[1].
“DB schemes are maintaining steady surpluses with Barnett Waddingham research showing that for the first time, contributions paid by the FTSE 350 companies into DB schemes was lower than the amount paid by these companies into Defined Contribution (DC) schemes[2]. For those employers with both DC and DB schemes, there may be interest in considering whether any DB surplus can be used to top up DC schemes, importantly, without impacting buyout affordability.
“For the wider de-risking market, funding levels mean that there will continue to be high levels of demand and it is unlikely that the change in Government last week will significantly change this. For trustees looking towards their own endgame strategies preparation remains a key priority.”
Sion Cole, Head of European Institutional OCIO at BlackRock, said: “The aggregate surplus of schemes continued to rise in June, from £468.8 billion at the end of May to £473.6 billion at the end of last month – this marks a nearly £45 billion increase in surpluses since the start of the year. The continuation of a supportive market environment in June reinforces the opportunity for trustees to secure the long-term fully-funded status for their schemes.
“In this market environment where rates remain higher for longer, trustees are increasingly focusing on their long-term strategy and identifying innovative ways to continue utilsing their surplus to improve member outcomes.
“The progress central banks have made on inflation is becoming increasingly clear. At the same time, the downside risks to growth have become more pronounced across developed markets. With that in mind, we expect major central banks, including the Bank of England, to cut rates before the end of the year. This presents further opportunities in fixed income for schemes. It also opens the door for schemes to review their positioning in traditionally high risk assets such as emerging markets debt and equities. It will be key for schemes trustees to align their risk-appetite with their exposure and long-term objectives.”
Vishal Makkar, Managing Director of UK Wealth Consulting at Gallagher: “June saw the PPF 7800 Index maintain its steady funding levels, continuing the positive trend we’ve observed in recent months. Notably, the aggregate surplus increased by £4.8 billion at the end of June, despite the usual uncertainties surrounding general elections. To sustain this momentum, trustees must prioritise future planning. After years of challenges for DB pensions, the past year has marked a significant positive shift for most schemes, and its crucial to stay proactive in setting endgame targets and timelines.
“Completing de-risking transactions remains a top priority for many schemes, but regardless of the long-term objectives, trustees and sponsors share common priorities – whether that’s managing risks to reduce volatility or ensuring high-quality administration to keep their members satisfied. Additionally, the potential for interest rate cuts in the second half of the year could introduce some volatility in scheme funding positions, which trustees should consider now.”
Jaime Norman, Senior Actuarial Director at leading independent consultancy Broadstone, commented: The latest PPF 7800 update continued the theme of stability in the defined benefit pension scheme funding environment by posting a modest increase.
“However, trustees and scheme sponsors cannot afford to become complacent. There remain several uncertainties in the market around the funding code, the use of surpluses and the S37 court case while wider geopolitical events may also cause some turbulence.
“Despite the rush to buy-out through a record year in 2023, there will still be a sizeable majority of schemes that will need to deal with these issues in due course. It is reassuring that the new Labour government has indicated continuity as its principal direction of travel, so we are not expecting any wholesale changes.
“Early engagement with advisers will help avoid unwanted surprises so schemes can carry on their journey to their desired endgame option.”
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