Jaime Norman, Senior Actuarial Director at leading independent consultancy Broadstone, commented: “Despite this month’s dip in the total surplus, scheme funding has improved significantly throughout the year and will have taken many schemes closer to endgame than they would have planned for. The recent market volatility appears to have subsided, and schemes can look ahead to the coming months with renewed confidence.
“As such, many scheme sponsors approaching end of year statutory reporting will find themselves in the unusual position of dealing with a surplus rather than a deficit. While this is great news from the perspective of their members and scheme security, adjusting to reporting a surplus will require some attention given the complexity of the rules. Employers should be looking to get support as early as possible on their year-end position and their auditor’s interpretation of scheme rules, as well as reviewing future contributions.
“Looking ahead, 2023 looks like it will be an incredibly busy year for the de-risking market given the improvements in funding levels. In such a crowded market, only those trustees and employers that are best prepared will be able to capitalise on these opportunities so forward-planning remains key.”
Vishal Makkar, Head of Retirement Consulting at Buck in the UK comments: “At the end of November 2021 the aggregate surplus of the schemes in the PPF Index was £81.4 billion. As we approach the end of another tumultuous year, today’s figures show that the surplus now stands at a staggering £371.5 billion. Of the 5,215 schemes in the PPF 7800 Index, 4,385 are now in surplus, compared to just 2,812 one year ago.
“2022 of course hasn’t been plain sailing and the disruption caused by the autumn ‘mini’ Budget showed how trying to maintain LDI hedging levels caused serious liquidity constraints for some schemes. Ultimately though, defined benefit pension schemes are for the most part in a much stronger funding position than they were at the start of the year. This should give trustees some much-needed breathing space to focus on their longer-term journey planning and undertake necessary data administration work. Data and governance will continue to be major themes for the new year, which looks set to be dominated by a range of new requirements on trustees’ time.
“Preparing for the Pensions Dashboard Programme, which is expected to begin onboarding schemes next year, will be a key priority for DB schemes. Regulation, as always, is going to be an area of focus, with the new DB funding code expected next year as well. Meanwhile, ESG reporting remains an ongoing priority for trustees and something the FCA is looking at closely. Following the introduction of the TCFD’s climate reporting recommendations, measuring and reporting their progress on all things ESG should be a key part of any trustee planning.
“As with 2022, trustees will likely also have to handle a range of developing economic pressures next year, as the UK economy faces low growth, high inflation, and rising interest rates. For example, calls from pensioners for discretionary increases to match inflation may be forthcoming. But amid all this noise, trustees will still need to grapple with the bigger picture. Acting early and strategically on all the upcoming regulatory requirements will be essential.”
Kieran Mistry, Senior Business Development Manager at Standard Life: “Funding levels of defined benefit (DB) schemes continue to be stable, with only a marginal movement in aggregate funding level as the Bank of England began its programme of unwinding emergency bond purchases. The latest figures show that the aggregate section 179 funding ratio for the 5,131 schemes in the PPF 7800 index now stands at 133.7 per cent at the end of November compared to 136.0 per cent at the end of October.
“Rising interest rates over the last twelve months have reduced scheme liabilities, with high inflation also contributing to the improved funding levels of many schemes. DB schemes will no doubt welcome the recent relative market stability as they look to take stock of their position and options following volatility earlier in September and October.
“We expect this will lead to increased interest in de-risking from schemes heading into 2023, as they look to secure liabilities and lock down risk. However, as demand increases, it is critical that schemes have done their groundwork to prepare for de-risking transactions to help them get the best engagement from insurers in a busy marketplace.”
|
