Data crunch: Scheme deficits have recovered by £100bn since the low point of the Covid-19 pandemic, while the Pension Protection Fund liabilities with schemes in assessment are down by more than £4bn, according to the PPF’s Purple Book 2021.
The lifeboat fund’s probability of success has also improved by 12 per cent since 2020, rising to 95 per cent.
The 16th iteration of the report shows that the defined benefit universe continues to shrink. The number of PPF-eligible DB schemes declined from 7,751 in 2006 to 5,327 in 2020, and has since dropped to 5,220.
While it’s positive to see such an improvement in scheme funding, we’re extremely mindful that this has mainly been driven by market movements and not a proportional increase in scheme derisking
Lisa McCrory, Pension Protection Fund
“The declining universe reflects schemes winding up, scheme mergers, and schemes entering PPF assessment,” the PPF stated.
The number of members in eligible schemes has likewise declined, from 14m in 2006 to 9.9m in 2020, and then to 9.7m in 2021.
The report noted that schemes with more than 5,000 members make up almost 75 per cent of each of total assets, liabilities and members. However, these only represent 7 per cent of the total number of schemes in the Purple Book 2021 dataset.
Conversely, schemes with fewer than 1,000 members make up 80 per cent of the total number of schemes, but only around 10 per cent of total assets, liabilities and members, it added.
Levy take increases
The levy take for 2021 was £630m, up from £564m in 2020. The balance of payments shifted further towards the 100 largest payers, who contributed 55 per cent of the total levy take, up from 51 per cent last year.
This year saw 30 new schemes enter PPF assessment, down 10 from the 41 added in 2020. The total value of the year’s claims was £0.2bn, compared with £0.5bn made last year.
There are a total of 87 schemes in PPF assessment and liabilities total £9.4bn, while 2020’s figures were 80 and £13.6bn respectively.
The PPF’s probability of success, meanwhile, has risen from 83 per cent to 95 per cent.
“The PPF made compensation payments of £1bn — the highest to date — compared with £860m in the previous year,” it stated.
As of March 2021, there were 184,844 members receiving compensation, up from 169,861 a year earlier, while the average annual payment increased from £4,588 to £4,829 in the year.
Scheme funding improves
Scheme funding improved during the year, reversing the damage done by the pandemic and the government’s lockdown policies.
Funding stood at 97.1 per cent in 2006, but the onset of Covid-19 saw it drop to 94.9 per cent in 2020. It has improved dramatically since, now standing at 102.8 per cent.
A similar story played out with scheme deficits. Last year saw them balloon to £229bn, with that year’s surplus at £138bn, but this position has since reversed. This year’s figures show a surplus of £175bn, while deficits have fallen by £100bn to £129bn.
“The increase in the aggregate funding ratio is mainly the result of market movements, primarily the result of higher gilt yields driving down liability values by more than the corresponding decrease in asset values, together with large increases in equity values,” the Purple Book explained.
However, the PPF noted that there was a further increase in the aggregate funding ratio “from reflecting up-to-date valuations and the latest eligible universe available, by updating to the new Purple Book 2021 dataset”.
As Pensions Expert reported in April, almost 300 schemes could have seen their deficits transformed into surpluses after the PPF announced its decision to press ahead with changes to actuarial assumptions.
PPF statistics hint at a different future for DB schemes
The Pension Protection Fund 7800 index figures have been notable, revealing an aggregate funding position of 103.5 per cent with the proportion of schemes enjoying a surplus on the PPF basis far higher than at this point in 2020.
Lisa McCrory, the PPF’s chief finance officer and chief actuary, said: “While it’s positive to see such an improvement in scheme funding, we’re extremely mindful that this has mainly been driven by market movements and not a proportional increase in scheme derisking. 2,525 of the 5,220 schemes under our protection remain underfunded and have an aggregate deficit of £129bn.
“Many of these schemes have individual deficits which would, if they were to claim, have a significant impact on our balance sheet. Despite this risk and the ongoing economic uncertainty around insolvencies post-furlough, we remain confident in our ability to face future claims.
“Our funding position is very strong, as is our probability of success, and we want to reassure the 9.7m DB pension savers under our protection that we’re in an excellent position to continue to protect them.”
