One-fifth of schemes with a long-term funding target, in addition to that used for technical provisions, are targeting a buyout, analysis from Aon has revealed.

Almost two-thirds (60 per cent) of pension schemes have an additional long-term funding target.

In its 13th annual Pension scheme funding – an analysis of completed valuations report, Aon found that 80 per cent of schemes with a long-term funding target were targeting self-sufficiency.

The Pensions Regulator has advised all schemes undertaking a valuation to agree a long-term funding target prior to a stricter code of practice on scheme funding.

Aon’s research analyses the results of UK pension schemes’ funding valuations which were completed up to July 2019.

It found that two-thirds of schemes took an integrated approach to risk management, including planning for negative scenarios and contingency planning. This has increased from 50 per cent four years ago (2015).

Investment strategy was reviewed at the same time as the valuation by 46 per cent of scheme, down slightly from last year (51 per cent), although this is an increase from 37 per cent in 2015, when many of the most recently surveyed schemes completed a valuation.

Average discount rates in excess of gilt yields were slightly higher than last year, but lower overall than in 2015, while the average technical provisions funding level remained at a similar level from both 2015 and 2018.

Aon discovered that there was a “significant” increase in the number of schemes carrying out data cleaning exercises prior to the valuation, up from 30 per cent to 46 per cent in one year.

The report stated: “These measures allow for more accurate calculations of technical provisions.

“They also allow for the provision of more accurate and complete data required for future transactions such as pensioner buy-ins, and for liability management exercises such as pension increase exchange exercises.”

The average deficit recovery period remained around 7.3 years, while the average funding levels “have remained relatively stable over recent months”.

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