“Today’s analysis covers the latest tranche of valuation submissions received by the Pensions Regulator in the period to 31 December 2021. Spanning valuation dates between September 2019 to September 2020, this includes the early part of the COVID-19 pandemic.
“Over the three year inter-valuation period, the analysis suggests that funding levels remained broadly unchanged across the majority of schemes. Perhaps unsurprisingly, given the environment, more schemes (45%) needed to lengthen their recovery plan end dates than the year before (35%). As has been well reported, the impact wasn’t as severe as initially feared. Markets quickly reversed out the damage done by the pandemic, although challenges remained across many businesses. The analysis indicates nearly a quarter (21%) of schemes extended their recovery plan end date by more than three years. However, average recovery plan lengths are still continuing to fall with the average plans less than six years.
“Of course, the landscape has shifted dramatically in 2022. Whilst 27% of schemes reported a surplus on the technical provisions funding basis at these valuations, in this year’s Annual Funding Statement the Regulator estimated that 61% of schemes currently doing valuations would be in surplus at 31 March 2022 as funding has improved. Subsequent hikes in gilts yields amidst rising inflation are likely to have brought further good news for schemes with less hedging in place – usually those with larger deficits that are further behind in their de-risking journeys. Overall, the scheme funding picture is likely to look much improved.
“With the DB funding regime under review, this evolving view of the DB universe makes for interesting consideration. Specifically, in terms of what all this could mean as TPR ultimately look to set the parameters within the framework when they publish their second consultation later this year.”
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