PPF says scheme liability reduction fails to offset falls in assets during August

The aggregate surplus of the 5,131 schemes in the PPF 7800 index is estimated to have decreased over the month to £441.1bn at the end of August 2023, from a surplus of £446.1bn at the end of July 2023.

The lifeboat fund's latest update showed the funding ratio decreased from 146.4% at the end of July 2023 to 146.2%

It said total assets were £1,396.6bn and total liabilities were £955.5bn.

The PPF calculated there were a total of 473 schemes in deficit and 4,658 schemes in surplus at the end of August - adding the deficit of the schemes in deficit at the end of August 2023 was £2.3bn, up from £2.2bn at the end of July 2023.               

PPF chief actuary Shalin Bhagwan said: "Aggregate funding levels across the DB universe deteriorated slightly over the past month due to a reduction in the value of pension scheme assets.

"This was offset to some extent by a reduction in liabilities arising from a rise in yields. During the month, yields on long-dated gilts briefly reached levels seen during last year's market turmoil. This time though, markets remained orderly and the spike in yields quickly reversed."

Bhagwan said anecdotal evidence suggested that some pension schemes took the opportunity to add to their holdings of gilts - noting, however, that, in aggregate, funding level gains of the last 12 to 18 months haven't been accompanied by the same level of interest rate and inflation hedging activity as similar gains would have prompted in the past.

He said: "This is perhaps unsurprising as pension schemes seek to review their funding, investment and governance arrangements following the stress in the leveraged liability-driven investment market."

Bhagwan also noted that, despite strong aggregate funding figures, a portion of schemes remained in deficit.

He explained: "Whilst the estimated aggregate funding position continues to show a surplus, it should be noted that approximately 10% of DB pension funds are in deficit and some of these may not be able rely on their sponsor covenant."

Read more: Professional Pensions' DB Funding Index