The funding position of private sector DB pension schemes continues to improve, according to the latest edition of the PPF’s Purple Book.
The detailed analysis of the defined benefit (DB) universe showed the net surplus of private sector pension schemes rose to £219bn, representing a funding ratio of 123.1% on a section 179 basis.
The PPF made two changes to its data analysis for the 2024 edition of the Purple Book, bringing in more granular asset allocation data and improved cashflow estimates, which has made the asset and liability data more accurate. It has also made use of better scheme data sourced from the Pensions Regulator.
It means several figures are significantly different from last year’s Purple Book – for example, on a full buyout basis the aggregate DB funding level across the PPF’s universe was 94.4%, down from the 111.9% reported last year.
The PPF has restated its 2023 data using its new methodology, showing that the full buyout funding level has actually increased from 90.3%.
Steve Webb, partner at LCP, said: “Although these are big revisions to the figures, it is important that we don’t draw the wrong conclusions about what has been happening to DB scheme funding in the last decade.
“The overwhelming story remains one of dramatic improvement in overall scheme funding as evidenced by a range of data sources which have not changed. This includes data from company accounts and the evidence from transactions in the de-risking market.
“The overall funding position of most DB pension schemes is significantly better than a decade ago and today’s statistical revisions do not change that fact.”
A year of stability for DB pension schemes
Despite a record year for pension insurance transactions in 2023, the PPF reported that its universe of DB funds shrank by just 89 – reflecting the preference for buy-ins as DB schemes move gradually towards full buyout.
Asset allocation reflected the ongoing derisking of DB pension schemes, with bond allocations rising to 70% and equity allocations falling to 15%.
Nigel Jones, head of consulting and actuarial at Broadstone, said: “This year’s Purple Book is a reminder of the significant improvements to pension scheme funding we have seen over the past few years as higher gilt yields reduce liability values.
“The Purple Book highlights the movement of pension schemes away from equities and towards bonds with their asset allocation strategies. Given the government’s aim to increase pension investment in UK infrastructure and equities it is noticeable that scheme investment in UK equities as a proportion of total allocation to equities also dropped below 7%.”
Shalin Bhagwan, the PPF’s chief actuary, said: “After the dramatic improvements to DB funding levels in recent years, the past year has been marked more by stability.
“While aggregate scheme funding remains strong – with a net surplus of £219bn – risks do remain, underscoring the vital importance of sound endgame planning. The DB universe continues to mature as evidenced by de-risking trends with bond allocations up and further reductions to equity holdings.
“By refining our roll-forward methodology and using updated data, this year’s Purple Book provides an enhanced picture of DB scheme funding in absolute terms.”
