On the go: Three-quarters of defined benefit schemes are now cash flow negative with contributions no longer sufficient to meet regular benefit payments, according to Buck.
The consultancy’s 2019 Mid-Market Pensions Review, which analyses data from almost 1,900 UK DB schemes with asset values between £10m and £1bn, showed that 75 per cent of schemes have a gap between cash in and out. This is an increase of more than 5 per cent since last year, with the average scheme having net annual outgoings of around £3m.
The review stated that “this reflects the increasing maturity of schemes and also an uptick in pensions transfer activity”.
The findings also reveal a one-year reduction in assumed life expectancy at age 50, resulting in scheme funding positions improving over the year, with an average accounting deficit of 7 per cent of assets – half of what it was two years ago.
Although the landmark High Court ruling in October 2018 to equalise guaranteed minimum pension benefits for men and women is estimated to impact up to 5 million people across the UK, the consultancy’s review highlights there is likely to be a modest effect on the liabilities of pension funds.
While in extreme cases scheme liability values may increase by 5 per cent or more, for a typical scheme the impact is more likely to be around 0.8 per cent.
The review also showed that annual company contributions decreased from £5min 2017 to £4.2m in 2018, reflecting actions taken by companies to manage pension costs.
Furthermore, it found that the price of insurance products, such as buy-ins or buyouts, has reduced due to life expectancy trends and market competition, with a 70 per cent median funding ratio at December 31 2018, compared with 66 per cent as at December 31 2017.
Vishal Makkar, head of retirement consulting at Buck, said: “The past year has been incredibly busy for the pensions industry. We’ve not only seen the issue of GMP equalisation coming to the forefront following the High Court ruling late last year, but with the government consulting on pension consolidation and more recently giving the go ahead to CDC schemes, we are entering an exciting and potentially transformative time for the pensions sector.”
