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Funding position for UK defined benefit pension schemes continues to strengthen as surplus grows to £50bn, according to PwC analysis

Jul 01, 2021

The funding status for the UK’s 5,300 corporate defined benefit (DB) pension schemes continues to show that schemes are, on average, in a clear surplus position, according to the PwC Pension Funding Index.

Asset values increased over June while liability values remained stable, resulting in a modest increase in surplus to £50bn based on scheme’s own measures. This highlights the relative stability in the market, with the aggregate funding position staying out of a deficit for the last five months.

PwC’s Adjusted Funding Index, which incorporates strategic changes available for most pension funds, shows a £230bn surplus in pension schemes. The PwC Adjusted Funding Index takes into account available strategies such as a move away from low-yielding gilt investments to switching to invest in higher-return, income-generating assets. It also takes a more realistic approach to life expectancy changes. In comparison, other measures automatically factor in unrealised life expectancy increases when calculating total liability values. 

Emma Morton, pensions actuary at PwC, said:

“Trustees and sponsors should reflect on the fact that pension schemes are, on aggregate, in surplus. It’s not efficient to continue to pay money into a scheme that’s in surplus. While it’s right that schemes are run prudently, only those looking to transfer the scheme to an insurance company should consider deliberately building up a surplus, to cover the insurance premium that they will need to pay.

“Where sponsors are not planning to transfer their scheme to an insurance company, if they continue to pay cash into a well funded scheme, it’s inevitable that they will end up with a trapped surplus. Few scheme sponsors will be familiar with handling a trapped surplus, given pension scheme surpluses have been rare in recent history. It is notoriously difficult for sponsors to get a surplus back. Not only can it leave the funds tied up for years, but potential refunds would be subject to additional tax charges, higher than corporation tax rates.”

The PwC Pension Funding Index and PwC Adjusted Funding Index figures are as follows:

£

billions,

month end

 

Asset value

Current Funding Index

Adjusted Funding Index

Liability value

Surplus / Deficit

Liability value

Surplus / Deficit

June 2021

1,810

1,760

50

1,580

230

May 2021

1,790

1,760

30

1,580

210

April 2021

1,800

1,770

30

1,590

210

March 2021

1,780

1,780

0

1,600

180

February 2021

1,770

1,770

0

1,590

180

January 2021

1,800

1,920

-120

1,730

70

December 2020

1,830

2,020

-190

1,820

10

November 2020

1,800

1,990

-190

1,790

10

October 2020

1,760

2,020

-260

   

September 2020

1,780

2,040

-260

   

August 2020

1,760

1,990

-230

   

July 2020

1,780

2,050

-270

   

June 2020

1,780

2,050

-270

   
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Richard Pain

Richard Pain

Manager, media relations, PwC United Kingdom

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