TPR data reveals shrinking DB market

The defined benefit (DB) and hybrid pension scheme landscape has continued to shrink at a consistent rate over the past year, with the number of schemes falling by 2 per cent since 2022, the latest figures from The Pensions Regulator (TPR) have revealed.

TPR’s annual report on the occupational DB and hybrid scheme landscape showed that the percentage of schemes closed to future accrual has risen from 70 per cent to 72 per cent, while the proportion of schemes winding up remained steady at 4 per cent.

However, 20 per cent of DB and hybrid schemes, with total membership of 2.7 million, remained open to future accrual for their existing members, while 4 per cent, with a combined membership of 1.2 million savers, remain open to new members.

In addition to consolidation trends, TPR’s report showed that DB and hybrid scheme funding levels have improved since 2022, with the number of schemes with 100 per cent or greater technical provisions funding levels increased from 2,565 to 3,620.

TPR's data showed that the total deficit of schemes in deficit has also more than halved, falling from £63.6bn to £27.6bn.

Commenting on the findings, TPR interim director of regulatory policy, analysis and advice, Lou Davey said: “Today’s report gives an important overview of the DB landscape, which has more than 9.6 million memberships.

"Changes in scheme status have been small year-on-year but the trend of a contracting market continues."

Adding to this, Isio partner, Andrew Goddard, suggested that "trustees and sponsors are facing crucial decisions around optimal management of assets and liabilities and are increasingly realising the benefits of consolidation".

"Trustees and sponsors are considering consolidation not just to improve efficiencies and better protect member interests, but also because it is often the stepping stone they need to secure their preferred end-game solution," he continued.

“If a scheme is nearing buyout, it can often be challenging in the current market to be noticed by insurers. Smaller DB schemes can benefit from the scale and status offered by a consolidator with a proven track record, which can help them cross the final hurdle."

Broadstone head of market engagement, Simon Kew, agreed, suggesting that "for schemes and trustees, the findings once more re-iterate that the insurance market will be intensely competitive in 2024 and, most likely, through the next couples of years".

“Preparation, good scheme governance, excellent data standards and top-class administration will all be key to attracting and engaging insurers," he stated.

“Meanwhile, for larger schemes with strong sponsors, run-on may be an increasingly attractive and appropriate option. This could drive significant economic benefits as the government looks to promote a new regime of productive finance and investment in UK assets.”

Hymans Robertson head of DB actuarial consulting, Laura McLaren, also pointed out that a consultation on how schemes might generate and use surpluses investing more in productive assets is expected to land "shortly".

"With the statistics confirming only a minority - less than 4 per cent - of DB schemes remain open to new members now is the time for policymakers to look properly at longer term pensions strategy," she stated.

"Ensuring the regulatory environment balances keeping past benefits secure with offering good quality pensions to current workers.

“In the meantime, TPR and DWP are currently wrangling to make sure the final regulations and funding code are fit for purpose and proportionate given that there is now a very small, and reducing, number of poorly funded schemes."

A change in methodology

The regulator's latest annual update included some methodology changes, as TPR confirmed that as part of an ongoing programme of improvement, it has enhanced its methodology with heightened validation of the data it receives from its annual scheme return.

These improvements have resulted in revisions to scheme status statistics which are expected to better reflect the current DB landscape.

“This year, we have reviewed how data for this annual report is gathered and analysed, resulting in notable changes to some of its figures. Historical data for the report has also been reviewed and, where necessary, revised," Davey stated.

“As a data-focused and digitally-enabled regulator, we are reviewing how we collect, analyse and provide information. This data informs our approach and continues to underline the importance of schemes having long-term plans in place as they mature.” 

Given this, TPR said that status data should not be compared to previous publications of the DB landscape, or to The Purple Book 2023 published by the Pension Protection Fund (PPF).

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