The BBC has seen a small improvement in its accounting pension deficit as it embarks upon a 12-year plan of additional contributions to boost its scheme funding.
Many defined benefit schemes have seen increasing deficits in recent years due to low interest rates and corresponding low gilt yields, though some are beginning to see improvements in their funding position.
The scheme’s IAS 19 accounting pension deficit reduced to £1.5bn on March 31 2014 from £1.6bn the previous year.
“The major reasons for the reduction is the payment of additional amounts under the agreed pension deficit recovery arrangement as well as changes in the valuation assumptions,” the company said in its accounts released last week.
On April 1 this year the scheme began a 12–year recovery plan with an initial contribution of £200m. The BBC will then make contributions ranging from £95m to £250m between 2014 and 2026 (see graph).
The plan includes a provision for further contributions of £150m and £100m in 2027 and 2028 respectively, to be made if the scheme is not fully funded on its secondary funding objective before then.
Alan Collins, director at consultancy Spence & Partners, said the significance of the change should not be overstated. “When you’ve got such a big scheme, moving from £1.6bn to £1.5bn is almost the same as standing still,” he said. “The deficit moving by £100m is not something to get excited about.”
Collins said the improvement was likely offset by an increase in liabilities, mainly due to a reduction in the discount rate to 4.4 per cent from 4.5 per cent in 2013, combined with an increased life expectancy for female scheme members. However, this was itself offset by decreased life expectancy for male scheme members.
Previous contribution set-up
The corporation’s 2013 annual pension scheme report and accounts outlined a 10–year additional contribution plan beginning in April 2011, with contributions ranging from £110m to £60m.
The recovery contributions were increased and the length of the plan extended following the 2013 actuarial valuation, which revealed an almost £1bn increase in the technical provisions deficit to almost £2.1bn on April 1 2013 from around £1.1bn on April 1 2010.
“The previous actuarial valuation in 2010 formed the basis of the 2013 recovery plan¹,” said a spokesperson for the BBC. “That has now completely been revised on the back of the actuarial valuation.”
The average life expectancy after retirement at 60 was revised down to 27.4 years from 28 for males retiring today, and to 29.3 from 30.5 for male members retiring in 20 years.
However, the expectancy for female members retiring today was revised up to 29.8 years from 28.6, and to 31.8 from 30.3 for those retiring in 20 years.
Last year the scheme said a reduced equity allocation in favour of alternative assets, combined with employer contributions, had cut potentially £750m from its deficit over the past decade.
A spokesperson for the BBC said it planned to continue its strategy of divesting from equities, adding: “The BBC and the trustees will continue to move gradually away from equities and towards bonds, or bond-like investments, in line with this overall aim.”
Lynda Whitney, partner at consultancy Aon Hewitt, said DB schemes open to future accrual could use member benefits as a “safety valve” to prevent overfunding as they derisk their portfolios. “If you end up with more money [than expected] you can spend some of that money on the benefits,” she added.
¹Following its spokesperson's comments, the BBC has asked us to make clear that this recovery plan did not kick off in 2013, but was merely repeated in the year’s annual report.
A spokesperson clarified the position: "The previous actuarial valuation in 2010 formed the basis of the recovery plan outlined in last year’s annual report and accounts. The recovery plan has been revised following the 2013 actuarial valuation."
