The funding ratio of U.K. defined benefit funds covered by the Pension Protection Fund's 7800 index continued to improve in September, increasing to 134.8% from 125.1% at the end of August.
The PPF is the lifeboat fund for defined benefit plans of insolvent U.K. companies. It covers 5,215 pension funds, of which 746 are in deficit and 4,469 are in surplus.
The aggregate deficit of the schemes reporting a shortfall dropped to £5.3 billion ($5.9 billion) at the end of September from £14.3 billion the previous month, while the aggregate surplus increased to £374.5 billion from £313.8 billion at the end of August.
The funding ratio in September 2021 was 107.3%.
Total assets were £1.45 trillion and total liabilities were £1.08 trillion at the end of September, down from £1.82 trillion and £1.69 billion, respectively, the previous month.
Lisa McCrory, PPF chief finance officer and chief actuary said in a statement announcing the latest PPF 7800 Index report that rising gilt yields helped lift funding levels, and that more than 80% of pension funds in the PPF were fully funded. She cautioned that while liabilities have fallen, a high interest rate and inflation environment could increase pressure on some plan sponsors and she urged trustees to "have contingency plans in place."
The reported surplus could drop once there are data on liability-driven investment funds, which make up a significant proportion of U.K. pension assets, said Jaime Norman, senior actuarial director at independent consultancy Broadstone, in an emailed comment.
The improvement in funding levels show that pension funds "have not been as negatively affected as headlines would suggest," said Vishal Makkar, head of retirement consulting for investment consultant Buck. Recent Bank of England moves to rein in gilt yields and reduce volatility "should allow schemes to manage their liquidity requirements and investments better," he said in separate statement.
Improved funding levels could also create more opportunities for pension funds to pursue derisking activity, said Rhian Littlewood, senior business development manager at Standard Life. "A number of additional factors are currently coming together to improve the funding position of schemes as sponsors step up deficit funding, technical provisions improve, and investment performance has generally been positive in recent years," Ms. Littlewood said in an emailed comment.
