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The tenth edition of The Purple Book, published today shows that trends in defined benefit (DB) pensions have remained stable - in a year that witnessed major shifts in the pensions landscape, including the pensions freedoms
With around 6,000 DB pension schemes in the UK, the Purple Book, published by The Pension Protection Fund (PPF) and The Pensions Regulator, provides the most comprehensive view of the risks faced by these schemes.
The Purple Book shows that over the last 10 years, as companies have become more aware of the market and longevity risks attached to the schemes, the percentage of schemes open to new members fell from 43 per cent in 2006 to 13 per cent in 2015, although there has been a levelling off of the closure of open DB schemes.
Furthermore, schemes continued to de-risk through asset allocation changes. Between 2006 and 2015, the equity share of total assets fell from 61.1 per cent to 33 per cent, the gilt and fixed interest share rose from 28.3 per cent to 47.7 per cent, and the ‘other investments’ share of total assets rose from 10.6 per cent to 19.3 per cent. The UK quoted share of total equities has almost halved, falling from 48 per cent to 25.6 per cent.
Andrew Warwick-Thompson, Executive Director at The Pensions Regulator, said:
“This year’s Purple Book marks a significant moment. After a decade of dramatic decline, the DB landscape has reached a point of relative stability in terms of scheme status and membership. However the impact of new pension freedoms will not be seen until next year’s Purple Book, and may yet shift the landscape again.
“We have entered a new phase and we call upon trustees and employers to work together to agree their long-term aims, and the best way to secure their members’ benefits. We are committed to exploring credible new ideas with the pensions industry, and to working with sponsors and trustees to secure sustainable schemes that deliver good member outcomes over the decades to come.”
HIGHLIGHTS FROM THE PURPLE BOOK:
2015 Highlights
• The number of active membership (people who are in pensionable service under an occupational scheme), fell by 3 per cent in 2015, to 1.75 million
• Schemes with 2 to 99 members were the least likely group to be closed to new members. The largest schemes have the largest proportion of schemes where members can still accrue benefits
• Around one in 10 (13%) schemes is open to new members. A further 51% continue to accrue benefits for existing members
• Active memberships fell by 3.4% from 2014, the smallest drop in active members recorded in the Purple Book. The number of active memberships is around half of those found in the expanded Purple 2006 dataset
• Between end-March 2015 and end-September 2015, scheme funding has deteriorated by a further 1.5 percentage points, mainly reflecting the impact of lower equity markets and gilt prices on assets which more than offset the impact of higher gilt yields on liabilities
• The aggregate s179 funding position of the schemes in the Purple 2015 dataset as at 31 March 2015 was a deficit of £244.2 billion. This is the largest s179 deficit at an end March date since the establishment of the PPF (although the funding ratio was lower in 2009 and 2012)
• The s179 funding ratio for 2015 is 84 per cent. Total liabilities have increased from £1,176.8 billion in 2014 to £1,542.5 billion this year. Total assets have increased from £1,137.5 billion to £1,298.3 billion
• The data in the Purple Book is at 31 March 2015, so it is the first set of data published since the freedoms were announced but predates the launch of the freedoms in April 2015
10 year Highlights
• Between 2006 and 2015, the equity share of total assets fell from 61.1 per cent to 33 per cent, the gilt and fixed interest share rose from 28.3 per cent to 47.7 per cent, and the ‘other investments’ share of total assets rose from 10.6 per cent to 19.3 per cent. The UK quoted share of total equities has almost halved. The hedge fund share rose from 1.5 per cent in 2009, the first year the data was collected, to 6.1 per cent in 2015. The cash and property shares also rose as did the residual “other” category which included hedge funds before 2009.
• Between 2008 and 2015, the UK-quoted share of total equity holdings fell from 48 per cent to 25.6 per cent, while the overseas-quoted equity share rose from 51.6 per cent to 65.4 per cent.
• ONS data suggests that employers made special contributions to DB pension schemes of over £120 billion between the first quarter of 2006 to the second quarter of 2015.
• The value of risk transfer deals – buy-outs, buy-ins and longevity swaps - since 2006 sums up to £105 billion. Just under half of the deals were longevity swaps.
The risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the employer’s plans for sustainable growth (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).
The full edition of The Purple Book can be found below
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