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The Actuary The magazine of the Institute & Faculty of Actuaries

Majority of DB pension schemes in deficit, PPF warns

Almost two-thirds of the UK’s defined benefit (DB) pension schemes are running at a deficit, despite funding increasing to the highest levels recorded since 2014.

Schemes should undertake effective risk management ©iStock
Schemes should undertake effective risk management ©iStock

The findings from the Pension Protection Fund (PPF) were published yesterday in its Purple Book report, which gives a comprehensive picture of risks facing DB schemes.

The combined deficit of schemes reporting a shortfall stands at £187.6bn, while it was also found that the average length of recovery plans remains “stubbornly high” at 7.8 years.

At the same time, higher gilt yields, rising equity markets, and more up-to-date valuations saw the aggregate funding level of DB schemes rise by 5.2% to 95.7% in the last financial year.

This has cut the total aggregate deficit for all schemes from £161.8bn in March last year to £70.5bn, however, PPF chief financial officer, Andy McKinnon, said challenges remain.

“The current economic and political backdrop coupled with recent stock market volatility means companies should continue to take steps to de-risk their schemes,” he added.

After studying 5,450 DB schemes representing 10.4 million members in the UK, the PPF said its findings would only be slightly different if every scheme was included.

They show that large company schemes with more than 5,000 members account for 75% of all assets, liabilities and members, but make up just 7% of the schemes studied.

It was also found that the proportion of company DB schemes open to new members has stayed steady at 12%, but that the number of PPF-eligible schemes fell from 5,588 to 5,450 this year.

A continuation of de-risking trends was observed, with the proportion of equities held decreasing and bonds increasing, while the highest number of DB transfers since 2015 was recorded.

These transfers amounted to £10.6bn in the first quarter of this year, however, the PPF said this remains relatively small considering the pension universe has liabilities of £1.6trn.

PPF chief risk officer, Stephen Wilcox, said: “The Purple Book highlights the necessity of schemes undertaking effective risk management and reaffirms the importance of the PPF safety net.

“Our obligation to members is likely to stretch into the next century and in an environment of significant uncertainty, assessing and managing our risks is everything.”

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