The Purple Book, published today by The Pension Protection Fund (PPF), covers the 5,794 DB pension schemes the PPF protects. It provides the most comprehensive view of the private sector DB universe and of the risks the PPF faces in protecting them. The majority of the data is based on information that eligible DB schemes are obliged to provide to the Pensions Regulator, and cover the 12 months from 1 April 2015 – 31 March 2016.
Scheme Funding
The data shows that scheme funding is little changed in the twelve months to March. The aggregate deficit on an s179 basis fell slightly from £244.2 billion at the end of March 2015 to £221.7 billion at the end of March 2016, while the aggregate funding ratio rose from 84.2 per cent to 85.8 per cent.
Asset Allocation
The asset allocation of schemes has seen a more marked change, with the average allocation invested in bonds rising to over 50 per cent for the first time, reflective of schemes’ desire to diversify and de-risk. At the end of March 2015, the proportion invested in bonds was 47.7 per cent; this grew to 51.3 per cent at the end of March 2016. Meanwhile the proportion invested in equities fell from 33.0 per cent to 30.3 per cent, continuing the trend seen since the Purple Book was first published.
Scheme Demographics
There has been a very small increase in the number of schemes closed to future accrual, from 34 per cent to 35 per cent. This is a continuation of the trend that has been in place since the start of the Purple Book in 2006. Meanwhile the percentage of schemes that are open remained at 13 per cent in 2016 and has seen little change over the last four years.
Andrew McKinnon, Chief Financial Officer, the Pension Protection Fund said: “2016 has been an interesting year for defined benefit pensions. While scheme funding remained largely stable in the year to March, there have been large swings in funding since June. When we look back at what progress schemes have made over the last decade it appears that many schemes are just treading water. The average recovery plan length, at around eight years, has barely improved, which brings home the challenge we now face.
“The current economic backdrop, as well as scrutiny faced by the entire industry, suggests conditions will remain tough in 2017.
“The Purple Book 2016 highlights the necessity of effective risk management and reaffirms the importance of the PPF safety net for members of schemes that fail to pay what they promised.”
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