The accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies saw a marginal increase at the end of December, to £35bn.

According to the latest Pensions Risk Survey from Mercer, the most recent figure follows £31bn at the end of November.

Figures used for Mercer’s monthly Pensions Risk Survey relate to around 50% of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the same approach that firms adopt for their corporate accounts. This data underlying Mercer’s survey is refreshed as companies report their year-end accounts.

The latest data revealed the present value of liabilities fell from £627bn at the end of November to £595bn at the end of December. Mercer stated this was driven by a rise in corporate bond yields, offset to an extent by rising future implied inflation expectations.

Asset values also fell over the period to £630bn, compared to £658bn at the end of November, which reduced the impact of the liability falls.

Principal at Mercer, Matt Smith, said: “Our analysis shows that the aggregate funding position of FTSE 350 pension schemes, on an accounting basis, ended the year with a surplus, which is in stark contrast to the position at the end of December 2021.

“Some may ask whether this is the new normal. Many pension schemes have stayed resilient despite a year fraught with challenges and market volatility caused by the  situation in Ukraine, the continuing impact of COVID-19 and Brexit, and market turbulence caused by the UK’s mini-Budget. Now, schemes may find themselves closer to their end game and may be looking to capitalise on the improvement through 2023.”

Towards the end of 2022, The Pensions Regulator (TPR) launched two consultations on the regulatory aspects of the new DB pensions funding regime, building on the earlier consultations from both TPR and the Department of Works and Pensions (DWP), setting out more detail on TPR’s expectations for scheme funding.

Mercer stated that the key requirement is for pension schemes to have an agreed “long-term objective and journey plan”.

Smith added: “The TPR consultation is timely. Trustees and employers are taking stock of what’s next: securing their end game and assessing newer options such as consolidators or pursuing run-off. We expect journey plans will now also be taking account of recent investment changes. 

“Overall, 2022 demonstrated the value in robust planning and collaboration, which will be key aspects for trustees and employers in looking forward and agreeing realistic objectives.”

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