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UK defined benefit pension schemes remain in surplus despite market volatility, according to PwC’s Pension Trustee Funding Index

01 Mar 2022

The funding status for the 5,000-plus corporate defined benefit (DB) pension schemes in the UK continues to show that schemes are, on average, in a surplus position, according to PwC’s Pension Trustee Funding Index.

Asset and liability values both fell over February 2022, resulting in a surplus of £40bn based on schemes’ own ongoing funding measures. PwC’s Adjusted Funding Index shows a £200bn surplus - this incorporates strategic changes available for most pension funds, including a move away from low-yielding gilt investments to higher-return, income-generating assets, and a different approach for potential life expectancy changes.

Raj Mody, global head of pensions at PwC, said:

“Pension schemes generally remain well funded based on their own assessments for funding purposes, despite the volatility and disruption in markets over February. Many sponsors and trustees are now revisiting their journey plans - their long-term goals and how they’re going to get there. Those who are focused on securing members’ benefits for good might find that they are closer to that goal than they realise. They should be careful not to build up more money than is needed as there have been many situations of schemes being overfunded and value lost in the process of moving to a third party.”

With PwC’s Pension Trustee Funding Index showing a sustained period of surplus, well-funded schemes that want to transfer to a third party, such as an insurance company, are close to being able to do so. But other assessments of their position are helpful too. Trustees and sponsors should stay focused on the measures which best align with their scheme-specific strategy.

Swapnil Katkar, head of pension risk transfer at PwC, comments:

“For schemes planning to transfer their pension risk to a third party, traditional measures of their funding, like technical provisions or solvency, may not give them the best indication of where market pricing is and how it is moving. For example, insurance companies typically invest a significant amount in credit assets like bonds. Their pricing will depend on the returns they can generate in the market, and is therefore heavily influenced by credit spreads on those assets. Schemes considering other market solutions, like consolidators or third party capital backed solutions, would need different measures depending on the target investment strategy and the returns underwritten by the provider. If schemes focus on measures which align with their target strategy, then they will have a better chance of being ready to transact when the time is right.”

The Pension Trustee Funding Index and Adjusted Funding Index figures are as follows:

£ billions,

month end

Asset value

Trustee Funding Index

Adjusted Funding Index

Liability value

Surplus / Deficit

Funding ratio

Liability value

Surplus / Deficit

Funding ratio

February 2022

1,730

1,690

40

102%

1,530

200

113%

January 2022

1,780

1,750

30

102%

1,580

200

113%

December 2021

1,860

1,800

60

103%

1,630

230

114%

November 2021

1,870

1,850

20

101%

1,670

200

112%

October 2021

1,820

1,790

30

102%

1,620

200

112%

September 2021

1,810

1,790

20

101%

1,620

190

112%

August 2021

1,850

1,830

20

101%

1,650

200

112%

July 2021

1,850

1,840

10

101%

1,660

190

111%

June 2021

1,810

1,760

50

103%

1,580

230

115%

May 2021

1,790

1,760

30

102%

1,580

210

113%

April 2021

1,800

1,770

30

102%

1,590

210

113%

March 2021

1,780

1,780

0

100%

1,600

180

111%

Notes:

  1. The Pension Trustee Funding Index measures the aggregate funding deficits of the UK's defined benefit schemes. The Index reflects how schemes currently measure themselves. The Adjusted Funding Index reflects an alternative strategic approach.
  2. The Pension Trustee Funding Index measures how much cash sponsoring companies need to pay in. It is not the same as the accounting disclosures which use different assumptions primarily for the purposes of company accounts and prescribed reporting obligations, and do not directly affect cash funding. A scheme can have a surplus on an accounting measure but still require new cash to cover a deficit on a funding measure. It is also different from the Pension Protection Fund’s measure, which uses a standard set of assumptions and does not count full benefits.
  3. The PwC Indices covers the whole universe of over 5,000 UK defined benefit pension funds. Some other trackers cover just a minority subset (eg fewer than 10% of schemes), so may show different trends.
  4. The estimated asset value for the UK’s defined benefit pension schemes is based on monthly data from the PPF 7800 index, tracked over each month based on the movement in asset indices using data provided by Refinitiv. 
  5. PwC experts are available for interview - please contact Alice Bowdery on +44 7483 421921 /  alice.bowdery@pwc.com

 

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Alice Bowdery

Alice Bowdery

Manager, media relations, PwC United Kingdom

Tel: +44 (0)7483 421 921

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