The funding status of the UK’s 5,000 corporate defined benefit (DB) pensions schemes reached a new record surplus of £300bn in September, according to PwC’s Buyout Index, which continues to show a significant surplus above the estimated cost for schemes to ‘buyout’ their pension promises.
Meanwhile, PwC’s Low Reliance Index also shows a record surplus of £415bn. This tracks the position of the UK’s DB schemes based on a low-risk income-generating investment strategy, which should mean the pension scheme would be unlikely to call on the sponsor for further funding.
With surpluses remaining strong, there is continued focus on whether more of the assets held in pension schemes can be invested in productive UK assets.
John Dunn, head of pensions funding and transformation at PwC UK, said:
“With a new milestone reached in the funding level of the UK's DB schemes, the drive to increase pension scheme investment in productive UK assets is continuing to gain momentum. Our research suggests that there is at least a £300bn pot of assets that could be accessed to boost investment in UK businesses and major capital projects via release of this surplus to sponsors or direct investment by the schemes. Even using a relatively small portion of this surplus could bring new projects to market, resulting in a supply increase and further investment opportunities using public and private capital.”
Roshni Patel, DC pensions and benefits lead at PwC, added:
“It’s not just DB schemes looking at how they can invest in productive UK assets - defined contribution (DC) schemes are also looking to diversify into these alternative assets to boost member pots. An example of this is the recent partnership between some of the UK’s biggest DC pension providers, with a total commitment of up to £1bn to invest in build-to-rent property in the UK.
“With these types of assets in demand from both DB and DC schemes, not to mention other investors, will there be enough supply to go around? If not, with increased competition for these assets, prices could be set to rise - so it will be important for schemes to continue to assess value for money for their members, ensuring the price they pay doesn’t become over-inflated by market exuberance.”
The PwC Low Reliance Index and PwC Buyout Index figures are as follows:
Low Reliance Index |
Buyout Index |
||||||
£ billions |
Asset value |
Liability value |
Surplus / (Deficit) |
Funding ratio |
Liability value |
Surplus / (Deficit) |
Funding ratio |
September 2024 |
1,465 |
1,050 |
415 |
140% |
1,165 |
300 |
126% |
August 2024 |
1,470 |
1,060 |
410 |
139% |
1,190 |
280 |
124% |
July 2024 |
1,440 |
1,030 |
410 |
140% |
1,155 |
285 |
125% |
June 2024 |
1,430 |
1,030 |
400 |
139% |
1,170 |
260 |
122% |
May 2024 |
1,440 |
1,040 |
400 |
138% |
1,185 |
255 |
122% |
April 2024 |
1,405 |
1,015 |
390 |
138% |
1,160 |
245 |
121% |
March 2024 |
1,410 |
1,025 |
385 |
138% |
1,170 |
240 |
121% |
February 2024 |
1,390 |
1,000 |
390 |
139% |
1,140 |
250 |
122% |
January 2024 |
1,395 |
1,010 |
385 |
138% |
1,130 |
265 |
123% |
December 2023 |
1,430 |
1,060 |
370 |
135% |
1,200 |
230 |
119% |
November 2023 |
1,420 |
1,040 |
380 |
137% |
1,175 |
245 |
121% |
October 2023 |
1,365 |
990 |
375 |
138% |
1,115 |
250 |
122% |
September 2023 |
1,390 |
1,025 |
365 |
136% |
1,175 |
215 |
118% |
Notes to editors:
The PwC Indices measure the aggregate funding position of the UK's defined benefit schemes. The Low Reliance Index uses a discount rate assumption of gilt yields plus 0.5% pa. “Gilts plus” measures are often collectively referred to as funding targets where there is a low level of reliance on the company that ultimately supports the scheme. The Buyout Index reflects PwC’s view of indicative market pricing based on their current experience of completing buy-in and buy-out transactions.
The PwC Indices focus on liability value measures which schemes may be targeting in the long-term. These differ from other liability value measures, for example, those used for the purposes of preparing accounting disclosures or for the calculation of the levy payable to the Pension Protection Fund.
The PwC Indices covers the whole universe of around 5,000 UK defined benefit pension funds. Some other market trackers cover just a minority subset (e.g. fewer than 10% of schemes), so may show different trends.
The estimated asset value for the UK’s defined benefit pension schemes is based on monthly data from the PPF 7800 index, tracked over each month based on the movement in asset indices using data provided by Refinitiv.
PwC experts are available for interview - please contact Kevin Scott on +44 7561 789 014 / kevin.y.scott@pwc.com or Hannah Brook on +44 7483 421 730 / hannah.brook@pwc.com
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