PPF Purple Book reveals funding improvements following market volatility

The net funding position of defined benefit (DB) pension schemes improved to a surplus of £193bn in the year to 31 March 2022, amid the largest-ever annual fall in liabilities, the Pension Protection Fund (PPF) Purple Book has revealed.

Now in its seventeenth edition, the report showed that the aggregate funding ratio increased to 113.1 per cent from 102.8 per cent the previous year, primarily as a result of gilt market volatility driving down liability values, alongside large increases in equity values.

Indeed, the report revealed the largest-ever annual fall in liabilities within the DB universe over the past year, as total section 179 liabilities fell by almost 12 per cent and buyout liabilities fell by almost 10 per cent in the year to 31 March 2022.

More broadly, the report showed that schemes in the universe have continued to invest a large proportion (72 per cent) of their assets in bonds.

However, while the proportion of assets invested in equities remains stable at 19 per cent, the proportion of assets invested in UK equities has fallen to a record low of below 10 per cent.

Based only on current recovery plans in place, total annual recovery plan payments are indicated to decrease by around 88 per cent over the next 10 years, from around £12.3bn in 2022 to around £1.4bn in 2032.

However, the PPF clarified that this only shows the current position, suggesting that changes may be made to existing recovery plans and new recovery plans may be put in place in the future if experience is different from what has currently been assumed.

The report also revealed that, for the first time, there are now more schemes providing no form of accrual of benefits than those that do, with 51 per cent of schemes closed to new members and new benefit accrual.

However, schemes that remain open tend to be larger in terms of membership, as 21 per cent of members were in open schemes with a further 41 per cent in schemes that are closed to new members but open to new benefit accrual.

In total, the Purple Book 2022 dataset included 9.6 million DB scheme members, down from 9.7 million last year. Of these, 43 per cent are pensioner members; 47 per cent are deferred members; and 10 per cent are active members

The funding improvements can also be seen in the PPF's compensation activity, as the Purple Book revealed that, in the year to 31 March 2022, 14 new schemes entered PPF assessment, lower than 30 new schemes that entered assessment last year.

The total value of the year’s claims also fell from around £200m to £12m.

Reflecting on the past year, the PPF also confirmed that there has been a "material improvement in our funding position and in that of the schemes we protect", confirming that this has increased the likelihood of the lifeboat 'maintaining its financial resilience’.

PPF chief finance officer and chief actuary, Lisa McCrory, stated: “Although the general economic environment remains volatile, and much has changed in the economic and pensions landscapes since March, our more recent 7800 indexes show gains in funding.

“While a high interest and inflation environment could put pressure on employers, we’re in an excellent position to continue to safeguard the 9.6 million DB pension savers under our protection.

“As a result of our financial position strengthening significantly in recent years, we are entering a new funding phase where our focus will shift to maintaining our financial resilience.

"This means we can now take steps to reduce scheme levy payments without risking current and future members’ benefits. We expect to collect £200m in levy in the year 2023/24, nearly halving the levy collected in the previous year.”

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