Vishal Makkar, Head of Retirement Consulting at Buck in the UK comments: “By the end of 2022 the aggregate surplus of the schemes in the PPF Index was £376.7 billion, with a funding ratio of 136.5%. For the 4,445 schemes in the PPF 7800 Index which have begun the new year with a funding surplus, this is a clear opportunity to take stock, think strategically, and prepare for the year ahead.
“The new year also presents an opportunity for trustees to re-evaluate the wider economic picture. Inflation in particular will remain a major focus this year, after the CPI ended 2022 at 10.7%. There are also concerns about growth after the latest figures from the ONS showed that the UK’s GDP fell by 0.3% in the three months to October 2022. With new GDP figures due to be released later this month and a Bank of England base rate decision coming at the start of February, schemes need to stay alert to how the economic outlook could affect funding, as well as any impact on scheme members and sponsors.
“This economic doom and gloom may well also push schemes to de-risk and 2023 already looks set to be a busy year for the buyout market, as schemes seek to capitalise on the gains they made last year. As the buyout market becomes even more competitive, good preparation will be the key to success and schemes that have worked hard on their data administration will be at an advantage in the year ahead. Making serious strides in areas such as GMP equalisation and Pensions Dashboard readiness, will go a long way to reassuring potential insurers.
“Data preparation should be a priority for every DB scheme this year. For any scheme that wants to reach buyout, inaction is simply not an option.”
Kieran Mistry, Senior Business Development Manager at Standard Life, part of Phoenix Group: “The end of the year saw relative market stability throughout November and 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 136.5 per cent at the end of December, compared to 133.7 per cent at the end of November*.
“After navigating the impact of spiking interest rates over the second half of 2022 on Liability Driven Investments, there is renewed focus from pension scheme sponsors on the risks within their legacy DB arrangements. However, many of the schemes that were able to successfully navigate that period have a much-improved funding position heading into 2023.
“This year is already looking like a significant year for the pensions de-risking market, with many schemes finding themselves ahead of schedule on their endgame journey. With insurance remaining the gold standard for trustees, sponsors and members, 2023 looks set to be a record year for buy-in and buy-out activity, as schemes look to capitalise on their improved funding levels through insurance de-risking.”
*Figures taken from The Pension Protect Fund's latest update which covers the period until 31st December.
Jaime Norman, Senior Actuarial Director, Broadstone said: The significant improvement in funding levels was likely to lead to a hugely competitive insurance market in 2023.
“Pension scheme surpluses recorded huge gains in 2022 due to rising gilt yields and falls in liability values despite ongoing global market turbulence and significant UK macro-economic volatility in the Autumn.
“It means that many thousands more schemes will be closer to the end game than last year or than they could possibly have planned for at this point. 2023 looks set to be a red-hot year for the insurance market and we expect to see significant transaction volumes throughout the year.
“The challenge for schemes, particular those at the smaller end of the market, is that competition for attracting and engaging insurers will be intense. Trustees and employers must ensure that their preparations are in excellent condition to stand a chance of capitalising on the improvements in funding and securing the benefits of their members for the long-term.”
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