Matt Richards, Senior Business Development Manager at Standard Life, part of Phoenix Group:
“The funding positions for UK defined benefit schemes improved by the end of April 2023, in large part due to to a rise in gilt yields over the course of the month, as well as the easing of long-term inflation expectations. The latest figures show that the aggregate section 179 funding ratio for the 5,131 schemes in the PPF 7800 index now stands at 136.1 per cent at the end of April 2023, compared to 133.2 per cent at the end of March 2023*.
“This improvement in funding positions comes following a slight downwards trend observed over the last couple of months, but the overall picture is one where a large proportion of schemes are well funded and in a strong enough position to move towards buy-in or buyout, or to start considering it. This improvement is particularly marked when compared with the market this time last year.
“As the Pensions Regulator acknowledged last week, we are in an environment in which many schemes find themselves in surplus and in a position to consider de-risking activity with an insurer much earlier than anticipated, which makes for a crowded market. In this environment, preparation is more crucial than ever, and it is essential for Schemes and their Trustees to review their funding levels regularly and have a solid strategy in place. Being ready and able to move swiftly will allow schemes to stand out and work with insurers to secure deals that best meet their de-risking requirements.”
*Figures taken from The Pension Protect Fund's latest update which covers the period until 30th April.
Vishal Makkar, Head of Retirement Consulting at Buck in the UK comments: “Increasing gilt yields led to a rise in the aggregate surplus of the schemes in the PPF Index over the course of April, leaving many DB schemes in a strong funding position. The aggregate funding ratio now sits at 136.1%mas trustees and their advisors continue to navigate a volatile investment market.
“This market volatility featured prominently in the latest recommendations on liability driven investment (LDI), published by the Financial Conduct Authority at the end of April. The mini-Budget, which was released in September last year, threw leveraged LDI into the public spotlight as regulators, MPs, and members of the House of Lords all weighed in on the topic. Now that the dust has settled somewhat, the latest recommendations from the FCA and The Pensions Regulator are important reading for trustees.
“The guidance does note that while the market is now more resilient, the importance of good planning and governance still cannot be overstated. The recommendations set out by both regulators are relevant far beyond the use of leveraged LDI, and the focus they place on operational processes should be a key takeaway for schemes. This is a timely reminder for trustees to ensure they are doing their ‘spring cleaning’ and ensuring they have the right processes, controls, and plans in place to respond to whatever the market throws at them.”
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