Scheme funding levels rose substantially during December, latest analysis from the Pension Protection Fund (PPF) and Mercer finds.
The PPF said the aggregate surplus of the 5,131 schemes in its 7800 index was estimated to have increased over the month to £376.7bn at the end of December 2022 from a surplus of £371.5 billion at the end of November 2022.
It said the funding ratio increased from 133.7% at the end of November 2022 to 136.5%.
In total, it said there were 686 schemes in deficit and 4,445 schemes in surplus at the end of 2022 - with the deficit of the schemes in deficit £4.5bn, down from £5.8bn at the end of November.
PPF chief finance officer and chief actuary Lisa McCrory said: "The primary driver of the increase in estimated surplus was the rise in government bond yields through December, which meant that the estimated value of liabilities fell by £68.5bn.
"Bond yields rose in December as central banks, particularly in the US and Eurozone, re-iterated that policy rates are likely to remain at higher levels for some time. In addition, the Bank of England sold £15bn of the holdings that they had bought in the market intervention in September/October, representing a material increase in supply."
The PPF 7800 index provides funding estimates on a section 179 basis - broadly equivalent to the premium that would have to be paid to an insurance company to take on the payment of PPF levels of compensation.
Separate analysis by Mercer revealed that FTSE 350 pension scheme funding showed a £35bn surplus at the end of December - a £111bn improvement in funding levels during 2022.
The consultant's pensions risk survey data analysis for December 2022 shows that the accounting surplus of defined benefit (DB) pension schemes for the UK's 350 largest listed companies increased marginally to £35bn at the end of December 2022.
It said the present value of liabilities fell from £627bn at 30 November 2022 to £595bn at the end of December 2022 driven by a rise in corporate bond yields, offset to an extent by rising future implied inflation expectations.
Asset values also fell over the period to £630bn compared to £658bn at the end of November 2022, which reduced the impact of the liability falls.
Mercer said rising bond yields could represent a new normal for 2023 with schemes potentially increasing their focus on locking in funding gains, while balancing liquidity and cashflow demands.
Mercer principal Matt Smith said: "Our analysis shows that the aggregate funding position of FTSE 350 pension schemes, on an accounting basis, ended the year with a surplus, which is in stark contrast to the position at the end of December 2021.
"Some may ask whether this is the new normal. Many pension schemes have stayed resilient despite a year fraught with challenges and market volatility caused by the situation in Ukraine, the continuing impact of Covid-19 and Brexit, and market turbulence caused by the UK's ‘Mini Budget'. Now, schemes may find themselves closer to their end game and may be looking to capitalise on the improvement through 2023."
Smith said the improved funding came just after The Pensions Regulator (TPR) issued its consultations on the regulatory aspects of the new DB pensions funding regime in December - a key requirement of which will be for pension schemes to have an agreed long-term objective and journey plan.
Smith added, "The TPR consultation is timely. Trustees and employers are taking stock of what's next: securing their end game and assessing newer options such as consolidators or pursuing run-off. We expect journey plans will now also be taking account of recent investment changes.
"Overall, 2022 demonstrated the value in robust planning and collaboration, which will be key aspects for trustees and employers in looking forward and agreeing realistic objectives."
Mercer's Pensions Risk Survey data relates to about 50% of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach companies have to adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts.
