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:
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