Vishal Makkar, Head of Retirement Consulting at Buck, a Gallagher company, comments: “The last month saw a slight decrease in the aggregate surplus of DB schemes in the PPF Index, despite a £50bn drop in liability values as bond yields marginally increased again. The total number of schemes in deficit reached 599, but the vast majority of those in the Index – over 4,450 - maintained a surplus, moving into February in a solid funding position. The overall funding ratio is still above 143%.
“The collective funding levels of UK DB schemes have made considerable gains in recent months, with schemes reaching a new record surplus of £265bn in January. The recently announced DB funding regulations are enabling schemes in surplus to contemplate higher risk investment strategies for those surplus assets, together with removal of the requirement for broad cash flow matching, both giving schemes more investment freedom. This potentially could increase immediate asset returns for pension schemes but also unlock new assets for investment on a long-term basis.
“It is worth noting, however, that any strategic decision should be in line with a scheme’s risk appetite, protect any liabilities, and meet its future cash flow and liquidity requirements. For schemes in a deficit, there is an inherent pressure to enhance the financial stability of the scheme, potentially resulting in more contributions for sponsors, which must be considered alongside its investment strategy.”
Jaime Norman, Senior Actuarial Director at leading independent consultancy Broadstone commented: “The PPF 7800 recorded a very minor deterioration through January but the big picture of pension schemes holding on to hefty funding improvements remained consistent in the first month of the year.
“As a result, we are expecting another record year of de-risking in 2024 as schemes look to capitalise on the attractive funding position they have entered over the past couple of years. Meanwhile, insurers have moved quickly to ramp up capacity so they are able to meet this expected demand in what remains a competitive market.
“Despite this increased ability to meet de-risking demand, schemes still need to sure they have best-in-class administration, excellent data and meticulous preparation before approaching the market.”
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