Pension funds improve as gilts yield more

Better yields from gilts improved the position of defined benefit pension schemes during October, figures showed.

The UK's 6,653 defined benefit schemes, including final salary pensions, had a collective surplus of 13.5bn at the end of the month, up from a deficit of 20.4bn in September, according to the Pension Protection Fund.

The group said it was the first time the funds had been in surplus since July, while their funding position was also considerably better than the 44bn funding shortfall they faced in October last year.

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The improvement during October was driven by a combination of an increase in pension schemes' assets on the back of stock market rises, as well as a reduction in their liabilities as a result of higher gilt yields.

Overall, the value of schemes' assets rose by 0.6 per cent during the month, while their liabilities reduced by 2.9 per cent, after 15-year gilt yields, which are used in pensions calculations, rose by 0.2 per cent.

But despite the better overall funding position, 62 per cent of defined benefit schemes remain in the red, with these schemes collectively facing a shortfall of 63.7bn. The number of schemes with a surplus increased from 2,233 in September to 2,525 at the end of October.