Purple Book 2022
Every December the Pension Protection Fund (PPF) publishes its ‘Purple Book’, which gives an overview of the UK’s Defined Benefit (DB) pension schemes using data collected over the year to 31 March. While some of this information has now been overtaken by events that occurred during the latter half of 2022, it does provide a good steer as to the continued direction of travel for UK DB pension schemes. Highlights from the 17th edition include:
1. Improved funding positions for schemes over the year
Funding levels on a section 179 basis improved by around 10% over the year to 31 March 2022, which was largely driven by market movements.
Many schemes benefited from strong equity returns and higher gilt yields resulting in lower pension liabilities.
2. A record level annual fall in DB scheme liabilities
In the year to 31 March 2022, section 179 liabilities fell by around 12% and buyout liabilities fell by around 10%.
Although market movements and insurer pricing are forever changing the decrease in buyout liabilities is likely to result in an increase in the number of schemes buying out their liabilities with insurance companies.
3. Asset allocation remains similar
Schemes continue to invest largely in bonds (71.6%) with the second highest allocation in equity (19.5%). Both percentages were broadly unchanged to the allocations set out in the 16th edition of the Purple Book (72% and 19% respectively). In relation to the equity universe, the proportion of UK equities fell to a record low of less than 10%.
As DB pension schemes mature, schemes de-risk by moving their investments into lower risk assets. Therefore, it is expected that the percentage invested in bonds will remain high in the future.
4. More schemes provide no accrual of benefits than those that do
In 2022, the proportion of DB schemes closed to future accrual increased from 48% to 51%. There were c100k less DB scheme members in 2022, however, the split between active, deferred and pensioner members remained the same as 2021.
The proportion of closed schemes has been gradually increasing since the PPF started publishing the Purple Book in 2006.
5. Reduction in PPF compensation
There were only 14 new schemes that entered PPF assessment over the year to 31 March 2022, the lowest number since the PPF’s inception in 2006. Due to improvements in funding levels, the combined deficit (claims) of the new schemes in 2022 was £12 million (on a section 179 basis). This is a significant reduction on the £1.9 billion of record claims in the 2019 Purple Book.
The PPF has commented that they have also experienced a material improvement in their funding position. This has led to the 2023/24 levy estimate almost halving to £200 million and most schemes are expected to pay less.
The 2022 Purple Book can be found here.
Leah Summers
Consultant
leah.summers@qallp.co.uk