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 steer and understanding as to the continued direction of travel for UK DB pension schemes. Highlights from the 19th edition include:
1. Improved funding positions for schemes over the year
Funding levels on a section 179 basis rose from a surplus of £207 billion in March 2023 (restated) to a surplus of £219 billion in March 2024, largely as a result of market movements with higher gilt yields driving down pension liability values. The aggregate funding ratio increased from 120% in March 2023 (restated) to 123% in March 2024. Even on a full buyout basis the funding ratio increased from 90% (restated) to 94%.
Approximately 74% of schemes were in surplus at 31 March 2024 on a section 179 basis, and over 37% were in surplus on an estimated full buyout basis. Funding on an s179 basis as at 31 March 2024, is based on version A11 of the s179 assumptions. This is different from last year’s Purple Book, which used version A10. More information on the assumptions used can be found here.
2. Another record annual fall in DB scheme liabilities
In the year to 31 March 2024, section 179 liabilities fell from £1.03trn (restated) to £0.95trn and buyout liabilities fell from £1.37trn to £1.24trn.
The fall in liability values this year moves even more schemes to the point of being able to afford a buyout. This is 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.
3. Asset allocation remains similar
Schemes continue to invest largely in bonds, with the allocation rising slightly from 67% (2023 restated) to 70%. The second highest allocation was equity, but this dropped from 19% in March 2023 (restated) to 15% in March 2024. In relation to the equity universe, the proportion made up of UK equities continues to fall, to a record low of less than 7%.
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. Reduction in PPF levy
In 2023/24 the PPF raised a lower levy than last year (£173m down from £385m 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 2024/25 levy estimate is only £100 million, resulting in most schemes paying less than previous years.
5. Demographics
The Purple Book 2024 dataset includes 8.8 million DB scheme members. 46% are pensioners,
46% are deferred members and 8% are active members. These active members equate to just 0.7 million members.
The number of active members has fallen each year since the first edition of The Purple Book in 2006, when there were 3.6 million.
The 2024 Purple Book can be found here.