Against this background, the new funding regime will be in place very soon – for valuations with effective dates on or after 22 September 2024 - with its focus on a journey plan towards a low dependency funding target, aiming to reduce reliance on the employer covenant and achieve low dependency as a scheme matures. Ahead of this becoming a legislative requirement, the majority of schemes have already set such a target – and many have also produced a journey plan setting out how to get there.
The then Chancellor’s Mansion House speech in July 2023 opened up the prospect of a wider range of endgame options for pension schemes, while encouraging investment in UK productive finance.
The DWP has since consulted on plans for a public consolidator, to be established by 2026, along with measures to make the options for use of surplus more flexible - which would make it more attractive for DB schemes to ‘run on’, invest in productive assets and generate surplus.
The incoming Labour government’s election manifesto indicated that it would adopt reforms for schemes to take advantage of consolidation and scale, and undertake a review of the pensions landscape to improve outcomes and increase investment in UK markets – which it launched on 20 July 2024. It remains to be seen whether the new government will take forward the DWP’s proposals on options for use of surplus and a public consolidator. The King’s speech set out the government’s intention to introduce a Pension Schemes Bill, which will include developments for consolidation through commercial superfunds.
Our full data-driven analysis aims to support our clients’ better decisions.
Key findings include:
• 67% of schemes used a long-term funding target, with 71% of those having a plan to achieve the target by the time the scheme is significantly mature.
• 94% of schemes hedged at least 70% of their interest rate risk, and 93% hedged at least 70% of their inflation risk, showing an increase from three years ago.
• The average technical provisions funding level reached 103%, with 65% of schemes in surplus, both higher than any previous year since 2005.
• The average recovery period for schemes in deficit decreased to 3 years, down by 2.2 years compared to three years ago.
• The Pensions Regulator advised trustees to reassess their long-term targets, given the improved funding levels and evolving endgame options.
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