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Stable markets allow UK pension schemes to stay in overall £30bn surplus, PwC analysis shows

Jun 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.

Assets and liability values both fell slightly over May, resulting in a similar position to last month of a £30bn surplus. This highlights the relative stability in the market, with the aggregate funding position based on schemes’ own measures staying out of a deficit for the last four months.

PwC’s Adjusted Funding Index incorporates strategic changes available for most pension funds, including a move away from low-yielding gilt investments to higher-return, income-generating assets, and a different approach for potential life expectancy improvements which are yet to occur. This measure shows a £210bn surplus.

Raj Mody, partner and global head of pensions at PwC, said:

“Our funding index illustrates that pension schemes on the whole are in a good position. The aggregate surplus position reflects significant cash injections from sponsors over the last decade, and more recent improvements in market conditions. Trustees and sponsors should take comfort from this and use this period to define and lock into a long-term strategy.

“It’s important not to get distracted by other measures, such as the accounting position. The accounting measure is not helpful for assessing performance against a real-life strategy in practice. Similarly the buy-out measure, and any apparent deficit against that, is only relevant if you are planning to transfer your scheme to an insurance company as part of your strategy. There is a danger that trustees and sponsors can drown in the variety of measures surrounding their scheme, but should remain focused on the relevant metrics for their scheme-specific strategy.”

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

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

   

May 2020

1,780

2,020

-240

   

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