The number of UK defined benefit (DB) and hybrid pension schemes with 100% or better funding level for technical provisions has risen slightly, according to The Pensions Regulator (TPR).
In the 2023 update to its annual funding statistics, TPR revealed 38.7% of DB schemes reported a surplus in tranche 16 (valuations falling due September 2020 to September 2021). The result for tranche 13, the previous benchmark, which reflected valuations due between September 2017 and September 2018, was 37.2%.
TPR said assets and liabilities grew at approximately equal rates between tranche 13 and 16 – 93.5% and 93.7% respectively – for a majority of DB schemes, resulting in a relatively unchanged average funding ratio on the “going concern” basis known as technical provisions.
The latest data showed improved asset positions compared to tranche 13 schemes in the previous cycle. This was most commonly due to the combined impact of regular and remedial sponsor contributions and positive gains on investments in the three years to valuation, the regulator commented.
Other figures highlighted by TPR included the average recovery plan length for schemes in deficit being 5.7 years and a slight reduction in the average assumed future life expectancies for members aged 45, to 88.7 years and 91.2 years for men and women respectively.
But what happened next?
Those of you paying attention to the timing of the valuation data in the most recent analysis, mentioned above, will have noticed that it pre-dates the significant rise in interest rates during 2022 and 2023, which came into sharp focus following the now infamous mini-budget from then Chancellor Kwasi Kwarteng, in September 2022.
Although it was a pretty uncomfortable time for trustees with investments in LDI funds, who had to act fast to provide additional capital to maintain their desired hedging positions, the outcome for many was positive in terms of the impact higher yields had on funding levels. As a consequence, there has been a significant increase in the number of schemes now actively looking at insurance buy-out options.
It will be interesting to see how this features in TPR’s funding updates over the next couple of years, when we would expect to see the number of scheme’s reporting a surplus increasing further and, eventually, the number of DB schemes in existence reducing as schemes complete buy-out and wind up.
Contact us
However well your scheme has performed since last year’s “LDI crisis”, please give us a call if you would like to compare your experience to other, similar schemes or to discuss how we could help you manage the next phase of your scheme’s journey.
Contact: Steve Button
MHM Trustee Services Ltd
T: 01423 229029
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