If you have a DB pension waiting in the wings for your retirement, you’ll want to know the latest assessment on whether or not the UK’s 5,000 DB schemes will be in good shape to meet its obligations.

It’s been a turbulent time in the financial sector over the last year or two, with rising interest rates causing pain for many… but one part of the sector seems to be more than riding out the storm.

The UK’s 5000 private sector DB funds are now collectively in surplus. Bearing in mind that in March 2022 there was a collective deficit of £483.4 billion, their shift to a collective surplus of £149.5 billion just one year later was quite a recovery – and they are still faring well. According to PwC’s Buyout Index, funding levels reached a record surplus of £230bn in August 2023.

As a result of improved funding levels, says PwC, an increasing number of schemes are looking to broker transfers to the insurance market.

Why the huge shift? Well rising interest rates (bad in many respects) have led to falling gilt prices  / rising gilt yields. On the one hand, that set back the value of assets already in pension funds (on which there’s been plenty of media coverage); conversely, it reduces the value of their future liabilities.

On balance, the drop in the value of their liabilities has more than compensated for the decline in the value of their assets – so schemes have come out on top.

And yes, one conclusion of that is that the financial storm we saw from the Kwasi Kwarteng / Liz Truss Budget did these schemes some favours.

Those putting money into savings accounts have also seen much better returns for their money, particularly beneficial for those at the point of cashing them in for annuities.

Not sure that people do use cash to buy annuities any more?

The benefit of higher annuity rates is if someone with a DC pension plan wants the security of guaranteed income as annuity rates have increased by around 40%

Against that, of course, soaring inflation has taken large lumps out of the spending power of those savings, now and into the future, so… overall, it’s complicated.

What will all of this mean for you?

Looking forward, it’s hard to imagine the economy getting back to the point of ultra-low interest rates any time soon, and inflation back under 2% also seems a distant prospect.

All that has major implications for anyone planning their retirement finances, with calculations of the key variables – what you’ll have in your pot by the time of your planned retirement, what that will be worth (in real terms) at that point and what sort of return you can expect – akin to playing three dimensional chess.

The best way to look ahead is to turn to your RetireEasy LifePlan, which can let you see at a glance exactly what would happen if you test out the variables through a range of different scenarios.

That way, you can see what the conservative and optimistic outlooks are and make informed decisions on whether to start saving more, delay your retirement, shift your investments… or simply relax because the sums still add up, so you know you can “RetireEasy”

And, if your subscription has lapsed, just a few pounds a month can out it right back on track.