The eighth and latest version of the Purple Book shows that defined benefit pension schemes are continuing to reduce their risks as most of the asset allocation trends seen in recent years remain unchanged.
Published today (Tuesday) by the Pension Protection Fund (PPF) and the Pensions Regulator (the regulator), the Purple Book monitors risks faced by 6,150 mostly private sector schemes throughout the UK which represent about 11 million people.
The allocation trends tracked by Purple include a move away from equities into bonds, hedge funds and cash and deposits. In equities themselves, there was an increase in overseas allocations and a fall in UK share.
Within bonds, there was a fall in corporate bond allocation and a rise in government bond allocation for the first time since 2008 when this breakdown became available.
Purple also reported improvements in the economic environment since the end of March 2013, with gilt yields rising sharply and equity markets remaining broadly unchanged. This resulted in scheme funding improving to 93 per cent from 84 per cent in March.
PPF’s Executive Director for Financial Risk, Martin Clarke, said: “Purple provides us with an invaluable barometer about the changes in risk we face as we seek to hit our target of becoming financially self-sufficient by 2030. We are seeing some green shoots of improvement in scheme funding but risk remains high as we are in uncharted territory.
“However, we believe that our funding strategy continues to be appropriate and we are making good progress to meeting our funding aim. But, we live in uncertain times so keeping a close watch on our financial position remains critical to our future success.”
The Pensions Regulator’s interim executive director for DB regulation, Geoff Cruickshank, added: “Defined benefit schemes make up a sizable part of the pensions landscape and will continue to pay retirement incomes to millions of people for decades to come. The Purple Book provides the most comprehensive and in-depth view available of developments and risks in this area.
“We will shortly be consulting on our revised DB funding code of practice and regulatory strategy, providing pension trustees with additional guidance on managing the different risks in their scheme so that members receive their promised benefits.”
Other highlights in the Purple Book included a slow-down in the year-on-year decline in the number of schemes still open to new members. It shows a small fall to just under 14 per cent from just over 14 per cent last year, and 16 per cent in 2011. These schemes currently have more than 800,000 active members still accruing rights.
The percentage of schemes closed to new members fell from 57 per cent to 54 per cent but the percentage closed to future accruals increased from 26 per cent to 30 per cent.
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