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. This provides a good steer as to the continued direction of travel for UK DB pension schemes. Highlights from the 18th edition include:
1. Significantly improved funding positions for schemes over the year
Funding levels on a section 179 basis rose from 113% to 134%, largely driven by rising gilt yields in late 2022 resulting in lower pension liabilities. Even on a full buyout basis the estimated funding level is 112%.
Over 80% of schemes were in surplus at 31 March 2023 on a section 179 basis, and around 60% were in surplus on an estimated full buyout basis. This represents a significant increase from last year when only just over 10% of schemes had a full buyout surplus.
2. Another record annual fall in DB scheme liabilities
In the year to 31 March 2023, section 179 liabilities fell from £1.47trn to £1.05trn and buyout liabilities fell from £2.11trn to £1.25trn.
The dramatic fall in liability values this year moves a lot of schemes to the point of being able to afford a buyout. This is already placing pressure on the insurance market and schemes will need to be well-prepared before approaching insurers if they want to access the best pricing. The PPF notes that there were £44bn of risk transfer deals in 2022, which is small relative to the liability values above.
3. Increase in schemes entering PPF assessment
There were 20 new schemes that entered PPF assessment over the year to 31 March 2023, which is low by historical standards but higher than the 14 schemes that entered PPF assessment in the previous year. However, due to improvements in funding levels the combined deficit (claims) of the new schemes in 2023 was £10 million on a section 179 basis, which is the lowest number since the PPF’s inception in 2006.
The number of schemes in PPF assessment is at a historic low, and the deficit in those schemes is also lower than in previous years. This will be good news for the PPF’s funding position.
4. Reduction in PPF levy
The PPF raised a lower 2023/24 levy than last year (£385m down from £476m last year). In fact, the only year with a lower levy was the PPF’s very first year in 2006/07. This reflects a reduction in the risks the PPF faces, with reserves at their highest-ever level and lower projected future claims than last year.
The PPF has commented that they have experienced a material improvement in their funding position. This has led to the 2024/25 levy estimate halving to £100 million with most schemes expected to pay less next year than they did this year.
The 2023 Purple Book can be found here.
Daryl Morris, Consultant
Quantum Advisory