Pensions - Articles - DB surpluses increase as Bank avoids base rate cuts

 A rise in long-term gilt yields of around 0.5% led to a decrease in the value of liabilities, increasing scheme funding levels.

 This rise was partially offset by aggregate scheme assets decreasing over the month, driven by schemes’ hedging strategies.

 Over January 2024, UK pension schemes’ funding positions improved by c. £36bn against long-term funding targets, new XPS Pensions Group research shows. Based on assets of £1,416bn and liabilities of £1,267bn, the aggregate funding level of UK pension schemes on a long-term target basis remains extremely positive, at 112% of the long-term value of liabilities, as of 26 January 2024.

 Danny Vassiliades, Partner at XPS Pensions Group said: “Aggregate pension scheme surpluses increased significantly over January, with higher-than-expected December inflation figures tempering expectations about when the Bank of England will begin highly-anticipated rate cuts. With upcoming cuts in mind, schemes should be well hedged to protect against increases in the value of their liabilities.

 Whilst the Bank’s announcement today to maintain interest rates at 5.25% was widely expected, with significant market interest in predicting the first of the expected rate cuts, pension scheme funding may continue to experience some volatility in 2024 as expectations continue to shift.”