Pension schemes that are members of the Pension Protection Fund saw a marked improvement in their deficit over the last year, according to an analysis published today.
30 OCTOBER 2013 | BY THE ACTUARY TEAM
The PPF's Purple Book, published with the Pensions Regulator, stated that the aggregate funding position of the more than 6,000 eligible defined benefit schemes improved to £39.3bn at the end of 2013/14, down from £210.8bn a year previously. This was based on the aggregate section 179 funding position of eligible schemes.
According to the analysis, this improvement meant schemes were 97% funded at the end of 2013/14, up from 84% the year previously. This reflected both the impact of higher gilt yields on liabilities and the impact of higher equity markets on assets. However, between the end of March 2014 and the end of September 2014, scheme funding was estimated to have deteriorated by around 9 percentage points.
The report also found that schemes continue to de-risk, with average asset allocations of UK equities continuing to decline as part of trends to diversify holdings.
PPF chief financial officer Andrew McKinnon said that, as the government's wide-ranging reforms to pensions were being introduced next year, it would be interesting to see how the changes impacted on the risks faced by DB pension schemes.
'The comprehensive data that we collect annually through the Purple Book is an invaluable gauge of risk as we move towards our goal of being financially self-sufficient by 2030,' he said.
'Whilst there has been a marked improvement in scheme funding, risks do still remain and we are confident that our funding strategy continues to be appropriate to ensure the protection of our members.'
The Pensions Regulator's director of case management and intelligence, Geoff Cruickshank added that its objective was to minimise any adverse impact on company growth from DB liabilities.
'There is no doubt that a fine balance has to be struck in order to provide security for pension schemes while at the same time giving employers flexibility to invest in business growth,' he added.
'We believe that our new DB code of practice and regulatory strategy represent a common sense approach to managing this balancing act. It is important that trustees and employers work collaboratively, take a long-term view and manage risks appropriately, as set out in the code.'
Other findings in the report include a slowing in the decline of the number of schemes still open to new members, with a fall of only 1 percentage point in 2013/14 to 13% still open.
Also, the number of schemes paying no risk-based levy decreased to 17% in 2013/14, compared to 19% for 2012/13.