DB pension surplus continues to grow

Aggregate defined benefit pension (DB) surplus rose by £17.1 billion last month to stand at £146.4 billion at the end of January 2022, according to the Pension Protection Fund (PPF) 7800 Index.

The coverage ratio has also increased, rising from 107.7 percent at the end of December 2021 to 109.1 percent at the end of January 2022.

The index showed that while total assets fell from £1,818 billion to £1,757 billion over the month, this was more than offset by a fall in total liabilities from £1,688.7 billion to £1,610.6 billion.

The number of loss-making schemes also fell slightly from 2,152 to 2,094, which in turn increased the total deficit of loss-making schemes to £80.9 billion at the end of January 2022, compared to £97 billion at the end of December 2021.

Lisa McCrory, PPF’s Chief Finance Officer and Chief Actuary, commented: “Despite the fall in global equities over the past month, the continued rise in bond yields has meant that the aggregate surplus across the 5,215 schemes we protect has fallen by £17.1bn increased to £146.4 billion.

“This improvement in scheme funding resulted in less loss-making schemes with a reduced overall deficit of £80.9 billion, a positive trend which scheme trustees will no doubt welcome as they consider their longer-term plans.”

In addition, Vishal Makkar, Buck UK’s head of pensions advice, suggested that “following the Bank of England’s recent decision to raise the base rate by 0.25 per cent, the conditions could be set for further falls in liability values ​​this year”. .

“The bank’s latest move has already pushed gilt yields higher and there may well be more rate hikes on the horizon,” he continued.

“Four of the nine members of the bank’s monetary policy committee reportedly wanted to hike interest rates to 0.75 percent in February, and the committee could still vote in favor when it meets again in mid-March.

“Trustees and plan sponsors need to ensure their planning accounts provide for a higher interest rate environment and the potential for sustained inflationary pressures.”

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