“Important not to draw the wrong conclusions” about new PPF figures
Pensions & benefits DB pensions
The Pension Protection Fund (PPF) has today published its latest annual ‘Purple Book’ figures about the state of the finances of Defined Benefit (DB) pension schemes. As well as providing the latest estimates, PPF has substantially revised its figures so as to show a much lower overall level of estimated buy-out funding for UK DB schemes, from 112% in the 2023 Purple Book to 94.4% in the 2024 version.
However, LCP partner Steve Webb has warned against the danger of ‘over-reacting’ to these figures, which mostly reflect a change in method used to estimate funding positions rather than an actual reduction in scheme funding, and of missing the point that DB funding is still in a much more robust position than it was a decade ago.
He points to other data sources which confirm a sharp improvement in scheme funding.
These include:
- Data from company accounts which show the ‘best estimate’ of pension scheme balances; LCP’s latest ‘accounting for pensions’ report showed a combined surplus of the FTSE-100 companies’ pension schemes of £42 billion at 31 December 2023; this compared with a deficit of over £30 billion a decade earlier;
- The volume of activity in the de-risking market has surged in recent years in light of the sharp improvement in scheme funding; LCP’s 2024 report on the risk transfer market found that 2023 was a record year for transactions with nearly £50 billion in scheme assets being transferred to insurers as part of buy-outs and buy-ins to secure member benefits; five years ago the volume was at half this level; LCP forecasts a sustained level of transactions of £40bn-£60bn a year for the next decade, as schemes make the most of their improved funding position.
In addition, even the revised ‘Purple Book’ figures show a marked improvement in estimated buy-out funding for UK DB schemes from a funding level of 67% a decade ago to the latest estimate of 94.4%.
Commenting, Steve Webb, partner at LCP said:
Although these are big revisions to the figures, it is important that we don’t draw the wrong conclusions about what has been happening to DB scheme funding in the last decade. The overwhelming story remains one of dramatic improvement in overall scheme funding as evidenced by a range of data sources which have not changed. This includes data from company accounts and the evidence from transactions in the de-risking market. The overall funding position of most DB pension schemes is significantly better than a decade ago and today’s statistical revisions do not change that fact.
