The funding status of the UK’s 5,000 corporate defined benefit (DB) pensions schemes reached a new record surplus of £285bn in July, 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 £410bn. 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 this sustained surplus position for pension schemes, the potential to unlock pension scheme assets to drive investment in the UK economy continues to be explored. This is one of the key aims of the initial phase of the pensions review announced by the government earlier this month, with a focus on the Local Government Pension Scheme (LGPS).
John Dunn, head of pensions funding and transformation at PwC UK, said:
“The position of the UK's 5,000 DB schemes has never looked stronger and we are pleased to see the new government has put pension schemes at the heart of its mission to 'boost growth and make every part of Britain better off'.
“Defined benefit pension schemes can play a part in this growth, particularly if the initiatives around surplus sharing as an incentive for schemes to run-on are pushed forward. There is appetite from a number of schemes to seriously consider this model and, as we've explored previously, it could unlock £340bn for sponsors and members.
Why then, has the government chosen to focus part of the first phase of its pensions review on the pensions of town hall employees?”
Steve Blackmore, head of public sector pensions at PwC UK, added:
“With assets of around £360bn, the LGPS has been described as among the largest pension schemes in the world. Allocating more of its substantial assets to UK infrastructure projects would certainly provide significant funding for critical projects.
“That said, we think the real opportunity emerges over the next decade and beyond. LGPS pensions continue to grow, as current and future town hall workers build them up, and if income and outgoings broadly balance this will mean the LGPS will double its asset base every ten years - potentially becoming an even more potent UK growth accelerator.”
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 |
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% |
August 2023 |
1,390 |
1,030 |
360 |
135% |
1,160 |
230 |
120% |
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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