Published by Jessica Weisman-Pitts
Posted on November 2, 2022
2 min readLast updated: February 3, 2026
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LONDON (Reuters) -UK defined benefit pension schemes’ aggregate funding level rose by 1% to 103% in October, pensions consultants XPS said on Wednesday.
LONDON (Reuters) -UK defined benefit pension schemes’ aggregate funding level rose by 1% to 103% in October, pensions consultants XPS said on Wednesday.
Pension schemes faced a short-term cash crunch in late September on derivatives positions, forcing the Bank of England to step in to stabilise the UK government bond, or gilt, market.
But a sharp rise in gilt yields has improved schemes’ long-term funding positions. Rising rates mean pension schemes need to hold less money now to pay future pensions.
“Whilst a small minority of schemes will have been forced into choosing between maintaining hedging levels and targeting investment returns…the improvements in funding positions…have left many schemes in a fantastic position to achieve their long-term objectives,” said Felix Currell, senior investment consultant at XPS.
Many companies are keen to offload the risks of defined benefit, or final salary, pension schemes from their balance sheets through an insurance buy-out, particularly when times are tough.
But the schemes need to be well-funded – often with a cash injection from their sponsoring employer – to afford the insurance premium.
UK-listed companies with a defined benefit pension scheme issued 18 profit warnings in the third quarter, up 38% from a year ago, with the majority citing rising costs and overheads as the main reason for the warnings, data from consultants EY showed on Wednesday.
Of a total 1,217 UK-registered listed companies, 258 sponsor a UK defined benefit pension scheme, EY said.
(Reporting by Carolyn Cohn’Editing by Alison Williams and Kim Coghill)
A defined benefit pension scheme is a retirement plan where the employer guarantees a specific payout upon retirement, based on factors like salary and years of service.
An insurance buy-out is a financial arrangement where a pension scheme transfers its liabilities to an insurance company, effectively offloading the risk of paying future pensions.
A profit warning is a public announcement by a company indicating that its earnings will be lower than expected, often due to rising costs or economic challenges.
A cash injection refers to the infusion of capital into a business or financial entity, often necessary for maintaining operations or meeting financial obligations.
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