Headline: UK pension plan growth assets shrunk by £56bn in first month of 2022

UK pension plan growth assets down £56bn in first month of 2022
  • XPS’s DB:UK funding tracker reveals that plan assets, held to provide crucial investment returns, fell by around £56billion in the month to January 31, 2022.

  • UK pension deficits against long-term funding targets remained relatively stable in the month to January 31, 2022, falling by around £21bn.

  • Gilt yields continued to rise in January due to the Bank of England’s base rate hike in December and possible future actions needed to combat continued inflationary pressure.

  • DB:UK estimates it will currently take almost 13 years1 to achieve long-term goals under the new proposed funding code rules, up from 8 years planned in early 2021.

UK pension deficits have shrunk by around £21bn in the month to January 31, 2022 against long-term funding targets, analysis from XPS’s DB:UK funding tracker has found. . Based on assets of £1.815 billion and liabilities of £2.122 billion, the average funded level of UK pension schemes on a long-term target basis was 86% at 31 January 2022. XPS estimates that by the end of January 2022 the average level of the scheme would need an additional £30,000 per member to ensure it can pay their long-term pensions.

Drivers of change

The change in funding levels from January was small. Liabilities declined due to higher gilt yields, partially offset by further increases in inflation, with assets declining based on the level of interest rate and inflation hedging in place. While the move was beneficial for the level of funding for unfunded pension plans, falling growth market assets limited overall improvements in UK pension plan funding levels during the month.

US Fed announces rate hikes

Comments by US Federal Reserve Chairman Jay Powell on Wednesday (January 26th) strongly indicated that the Fed plans to raise interest rates at its next meeting on March 15-16. This will be part of the Fed’s efforts to rein in inflationary pressures affecting the US economy, alongside the end of its bond-buying program. Traditionally, tighter monetary policy drives growth markets lower, as it costs companies more to finance their operations and encourages consumers to seek savings. Mr. Powell has not ruled out further increases throughout 2022, although the Fed is keeping all options on the table for now.

The difficulty in tightening monetary policy is to ensure that economic growth can support rising borrowing costs; with the US economy growing at 5.7% in 20213, further increases are certainly possible if this growth is sustainable. January was indeed the worst month for US equities since the start of the pandemic; the tech-heavy S&P 500 and Nasdaq fell 5.3% and 9%, respectively, which would have been worse had it not been for the sharp rise in stocks over the last two days of the month. It is unclear to what extent the declines reflect investor sentiment on monetary policy tightening; markets are already pricing in further rate hikes, indicating that such increases are widely seen as inevitable as the global economy struggles with high inflation.

Potential Russia-Ukraine conflict

Fears of potential military action in Ukraine; a possibility supported by the evacuation of some British and American diplomats from Kiev. Alongside the above monetary policy concerns, the FTSE 100 fell around 2.6% on January 24, 2022 as tensions escalated. European markets are naturally set to suffer the most financially from any potential conflict, with the Euro Stoxx 50 falling 4.1% on the same day.

A concern for European investors is the impact of any conflict on inflation. DB:UK has shown the significant impact in recent months that rising inflation has had on pensions, due to supply chain difficulties and soaring energy prices. With European energy highly dependent on Russian gas exports, any conflict could drive prices up further; is just one of the impacts that rising tensions can have on global markets.


This month, DB:UK has been recalibrated to incorporate the latest industry data from TPR and PPF. Although there has been a slight improvement in funding levels over the past year due to higher gilt yields and positive asset returns, plan deficits have remained at a similar level. Despite the improved position that most systems will have seen the TPR stats2 show that while the duration of stimulus packages has decreased, they still see an extension of when plans should be fully funded. DB:UK estimates that it will take 5 more years for programs to achieve their long-term goals compared to the same period last year, largely because returns on investment will be lower.

Charlotte Jones, Senior Consultant at XPS, said: “After a turbulent year, this is one step forward and 5 steps back as many projects find themselves back where they started in early 2021 and their endgame even further out of reach. While frustrating, administrators and sponsors must continue to work together to achieve their goals, there are many ways to get back on track, whether by exploring the options available to members, reviewing their investment or simply by injecting more money.


1 including allowance for the combination of investment returns and current cash contributions

2 2021 Pension Regulator Scheme Funding Analysis as of July 27, 2021

3 Commerce Department figures via BBC news article 60158934

XPS’s DB:UK Funding Watch monitors the combined shortfall and funded status of UK defined benefit (DB) pension schemes (i.e. all registerable schemes – including hybrid schemes) on a target basis long-term using a discount rate of Gilts + 0.5%. It combines XPS’ market-leading member analytics with the award-winning Radar trip planning tool, enabling real-time tracking of changes and analysis of the reasons for any moves.

An online version of DB:UK is available here:


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