The PPF Purple Book: Six key charts for the corporate DB sector

The Purple Book, the PPF’s annual data analysis tome, is now in its 20th year, and has tracked the gradual maturity of the corporate defined benefit (DB) universe as schemes have closed, investment portfolios have shifted, and defined contribution coverage has soared.

This year’s headlines are predominantly a continuation of the multi-year trends we expect from the Purple Book. The PPF’s universe of corporate DB schemes shrank by just under 3% in the 12 months to the end of March, with 4,840 schemes in operation.

Fragmentation remains an issue, however: 80% of schemes have fewer than 1,000 members, while accounting for just 10% of total assets and liabilities. Those with more than 5,000 members make up 6% of total DB schemes but manage almost three-quarters of all DB assets.

“As more schemes approach their endgame, the need for thoughtful long-term planning remains vital.”

Shalin Bhagwan, PPF

Shalin Bhagwan, the PPF’s chief actuary, said: “In our 20th anniversary year, the 20th edition of The Purple Book provides valuable insight into the data and long-term trends shaping the UK corporate defined benefit universe.

“This universe has significantly matured over the past two decades, and this is increasingly reflected in asset allocations – which, in turn, explains the stability over the past year. And while section 179 funding levels remain robust, the £47.2bn deficit on a buyout basis is a reminder that as more schemes approach their endgame, the need for thoughtful long-term planning remains vital.”

Members and scheme status

Only 4% of all corporate DB schemes remain open to new members. However, as the majority of these are larger schemes, 15% of total DB members are in open schemes.

Last week’s Budget brought news that members of the PPF and Financial Assistance Scheme with pre-1997 benefits would begin to receive index-linked compensation, after years of campaigning. The PPF currently pays those with benefits accrued after 6 April 1997 a limited amount of inflation-linked compensation, capped at 2.5% a year.

The Purple Book contained an analysis of ongoing DB schemes that pay inflation-linked increases on pre-97 benefits. This comes as MPs have called for action against companies that have chosen not to do so.

Paying the PPF levy

This year has brought news that most DB schemes will be happy to hear: the PPF will not charge a levy in 2025-26. In addition, the Pension Schemes Bill contains provisions to allow for this to continue without hampering the lifeboat fund’s ability to raise the levy in future.

A record 3,074 schemes did not have to pay a risk-based levy this financial year, representing 62% of total schemes and 70% of section 179 liabilities.

Funding levels: a mixed picture

On a section 179 basis – the level of funding required to meet PPF levels of compensation – DB schemes remain well funded, as they have done consistently since the pandemic. However, as Bhagwan pointed out, full buyout level funding remains some way off for many pension schemes.

Underfunded DB schemes

Despite headlines about how well funded DB schemes are, the majority (3,207) are still underfunded on a buyout basis, representing about two-thirds of the PPF universe.

Just under a third (31%) of all DB schemes are less than 80% funded on a buyout basis, casting doubt on their ability to achieve an insurance transaction or generate any surplus to share with sponsors or members – two key themes for the DB sector this year.

David Hamilton, chief actuary at Broadstone, said: “Some may be surprised to see that one in four schemes are still expected to be in deficit on the PPF’s section 179 basis, even before allowing for the newly announced changes to include pre-97 pension increases.

“This helps explain why the PPF continues to be cautious around potential risks, notwithstanding the very healthy picture across the defined benefit universe as a whole.”