Private sector DB and hybrid pension scheme DRCs increase to £6.2bn in Q4 2020

Over two-thirds (68 per cent) of private sector defined benefit and hybrid (DBH) employer pension contributions in Q4 2020 were deficit reduction contributions (DRCs), according to figures from the Office for National Statistics (ONS).

The data showed that private sector DRCs in particular were on the rise, increasing from £2.9bn in Q3 2020 to £6.2bn in Q4 2020, whilst public sector DRCs “continued to remain low” at £162m.

Regular employer contributions, however, remained “relatively unchanged” for all scheme types, as public sector DBH schemes recorded a 5 per cent increase, while private sector DBH schemes recorded a 2 per cent increase and private sector defined contribution (DC) schemes' fell by less than 1 per cent.

In contrast, employee pension contributions rose across all scheme types compared to the previous quarter, with public sector DBH schemes reporting an 8 per cent increase and private sector DC schemes increasing by 1 per cent.

Private sector DBH schemes recorded the largest increase of 24 per cent, although the ONS clarified that whilst this was a "significant increase", it is likely to have been caused by sample variability.

DC employees’ pension contributions continued to make-up two-thirds of all employee contributions during the quarter, which ONS highlighted as indication that the most active membership is within DC schemes.

There were 23.2 million occupational DC members in Q4 2020, up from 22.4 million in Q4 2019, while the number of DBH scheme members fell from 18.3 million to 17.8 million during the same period.

Nearly all (98 per cent) of the benefits paid in Q4 2020 were from DB schemes and there were 3.4 million active DB members.

In addition to the data on contributions, the ONS figures also revealed that gross assets, excluding derivatives, reached £2.6trn as at the end of 2020, with the market value of pensions funds remaining "relatively unchanged" at £2.4trn.

The value of gross assets, excluding derivatives of private sector DBH schemes, fell
by 1 per cent between Q3 and Q4, whilst in contrast, public sector DBH and private sector DC schemes experienced growth of 6 per cent and 22 per cent respectively.

Private sector DBH schemes also saw direct investments fall by 3 per cent, from £1,124bn to £1,088bn, primarily due to a 16 per cent decline in cash and cash equivalents, from £87bn at the end of September 2020 to £73bn at the end of December 2020.

Gross liabilities other than pension liabilities, and excluding derivatives, have fallen by 8 per cent, with repurchase agreements representing around 88 per cent of the gross non-pension liabilities.

During the quarter, derivatives contracts with a positive and negative value also fell by 5 per cent and 7 per cent respectively.

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