Kieran Mistry, Senior Business Development Manager at Standard Life: “Funding positions for UK defined benefit schemes remained relatively steady during the first month of the year, with only minor changes in funding levels since the end of December. The latest figures show that the aggregate section 179 funding ratio for the 5,131 schemes in the PPF 7800 index now stands at 134.8 per cent at the end of January, compared to 136.5 per cent at the end of December.
“While DB funding levels remain relatively stable at present, the turbulent recent economic environment means DB scheme trustees and sponsors are focused on their DB de-risking and endgame strategies. With many schemes closer to their endgame than expected, the bulk annuity market has got off to a rapid start, and this is expected to continue throughout the year.
“Ultimately, with the potential for a challenging economic backdrop over the rest of 2023, schemes will be aiming to lock down risk and benefit from any gains over the last year. For schemes hoping to secure a buyout in the short to medium term, the focus should be on ensuring they are fully prepared before approaching insurers to get the best out of a very busy market.”
David Hamilton, Chief Actuary at Broadstone commented: “A relatively calm and stable start to the year has resulted in minimal volatility in pension scheme funding.
“However, this follows a year which saw dramatic improvements in funding, albeit characterised by spells of significant market turbulence, so 2023 is set up for a bumper year of de-risking.
“Many schemes will be a lot closer to end-game than they would have anticipated a year ago and should be revising their plans accordingly to manage risk levels whilst they prepare for buyout. They will face a hugely competitive market when it comes to attracting and engaging insurers so, more than ever, good preparation and a high-quality of data will be critical, particularly for schemes at the smaller end of the market.
“Tools such as our funding level monitoring service through Sirius can also help schemes monitor progress and prove to insurers when they approach the market that they have done their homework and are genuinely in a strong position to transact.”
Vishal Makkar, Head of Retirement Consulting at Buck in the UK comments: “By the start of February, the aggregate surplus of the schemes in the PPF Index was £374.4 billion, with a funding ratio of 134.8%. Broadly DB schemes have started the year in a very strong funding position, though of course there may be some concerns for the financial health of some scheme sponsors facing a difficult economic climate.
“Many schemes will then be turning their attention to issues of governance. The new Single Code of Practice from The Pensions Regulator is finally expected to come into force this year and should be a key area of focus for trustees. Two of the major requirements that schemes will have to deal with are establishing an ‘effective system of governance’ (ESOG) and carrying out an ‘Own Risk Assessment’ (ORA), both of which are likely to be substantial pieces of work.
“Schemes have had a long time to prepare for the new Single Code, so it’s vital they have a plan in place to meet their obligations. Evaluating existing practices and carrying out a gap analysis are important first steps, but schemes should now be turning their attention to the timelines, checklists and procedures they need to ensure they meet the requirements of the Regulator. Failure to act early on this could jeopardise the scheme’s journey plan and seriously hinder progress towards other long-term objectives, such as buyout.”
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