The aggregate surplus of DB pension schemes dipped to £226.2bn at the end of December, according to the latest Pension Protection Fund (PPF) 7800 Index.

That’s down by more than £9bn from a surplus of £235.5bn at the end of November.

The funding ratio remained at 125.7% in December, the same figure it had been in November. Total scheme assets fell 4% to £1.150.5bn during the month while total liabilities fell a similar 4% to £878.8bn. 

The deficit of the schemes in deficit at the end of December was £25.6bn, almost £3bn higher than the £25.6bn recorded at the end of November.

Shalin Bhagwan, PPF chief actuary said the lower index reflected the impact of rising bond yields on estimated pension scheme asset and liability values, “both of which decreased owing to stickier inflation and a signal from the US Federal Reserve that they will be slower to cut rates in 2025, as well as equities falling slightly over the same period.”

He added: “As schemes mature or reach their end game, their prudent approach to interest rate and inflation hedging may mean they are increasingly overhedged on a s179 basis.”

Jaime Norman, senior actuarial director at consultants Broadstone, said: “The year ended with a big spike in gilt yields with significant market volatility continuing into 2025. These movements could be good for schemes that are still poorly funded or with low levels of hedging, but it is likely to be unsettling for pension scheme members.”

He said 2025 “looks set to be another turbulent year across global markets amid increasing geopolitical risk and continuing macroeconomic uncertainty.”

Mr Norman said: “The job for trustees will be managing investment risk and monitoring employer covenants to ensure the long-term security of member benefits. The insurance bulk purchase annuity market is likely to see significant demand from pension schemes again in 2025 as employers look to de-risk and as more entrants and superfunds offer increasing levels of choice.”

Alex Oakley, BPA transaction manager at Standard Life, said: “While 2025 has started with markets experiencing a surge in gilt yields, the impact on aggregate funding levels is less pronounced than when gilt yields rose in 2022 as many schemes have increased their hedging levels since then.”

He said trustees were continuing to focus on tailoring de-risking strategies to secure long-term objectives and capitalise on favourable funding positions, including safeguarding member benefits and preparing for end-game solutions.”