The UK’s 5,000 corporate defined benefit (DB) pension schemes continue to have sufficient assets on average to ‘buyout’ their pension promises, according to PwC’s Buyout Index, which recorded a surplus of £240bn in March.
Meanwhile, PwC’s Low Reliance Index showed a near record surplus of £385bn. This index assumes schemes invest in low-risk, income-generating assets like bonds, which should mean the pension scheme is unlikely to call on the sponsor for further funding.
As a result of sustained improvements in funding levels, sponsors and trustees are increasingly re-evaluating the preferred ‘end-game’ strategies for their pension schemes.
John Dunn, head of pensions funding and transformation at PwC UK, said:
“With funding levels of the UK’s DB schemes continuing to remain very strong, schemes have a significant opportunity to ‘lock-in’ improved funding positions to avoid a return to the world of deficits.
“The nature of the ‘lock’ will depend on which end-game door sponsors and trustees wish to go through - for example, to buy-out, run-on, transfer to a superfund or to alternative forms of consolidation including the proposed public sector consolidator. We are therefore supportive of the Work and Pensions Committee’s recent call for schemes to understand the potential costs and benefits of the different options before locking in.”
Alison Fleming, Chief Pensions Actuary and partner at PwC UK, added:
“This mirrors the requirement from 1 April for the actuarial profession to advise their clients on the credible alternatives to particular end-game options. Pension schemes and their sponsors need to understand the benefits, cost and risks of each option as well as practical issues like timing and ease of implementation. This new requirement helps to reinforce existing actuarial standards, ensuring clients receive high quality advice in this complex area.”
The PwC Low Reliance Index and PwC Buyout Index figures are as follows:
Low Reliance Index |
Buyout Index |
||||||
£ billions |
Asset value |
Liability value |
Surplus / (Deficit) |
Funding ratio |
Liability value |
Surplus / (Deficit) |
Funding ratio |
March 2024 |
1,410 |
1,025 |
385 |
138% |
1,170 |
240 |
121% |
February 2024 |
1,390 |
1,000 |
390 |
139% |
1,140 |
250 |
122% |
January 2024 |
1,395 |
1,010 |
385 |
138% |
1,130 |
265 |
123% |
December 2023 |
1,430 |
1,060 |
370 |
135% |
1,200 |
230 |
119% |
November 2023 |
1,420 |
1,040 |
380 |
137% |
1,175 |
245 |
121% |
October 2023 |
1,365 |
990 |
375 |
138% |
1,115 |
250 |
122% |
September 2023 |
1,390 |
1,025 |
365 |
136% |
1,175 |
215 |
118% |
August 2023 |
1,390 |
1,030 |
360 |
135% |
1,160 |
230 |
120% |
July 2023 |
1,410 |
1,060 |
350 |
133% |
1,200 |
210 |
118% |
June 2023 |
1,390 |
1,060 |
330 |
131% |
1,235 |
155 |
113% |
May 2023 |
1,380 |
1,030 |
350 |
134% |
1,180 |
200 |
117% |
April 2023 |
1,425 |
1,105 |
320 |
129% |
1,265 |
160 |
113% |
Notes to editors:
1. The PwC Indices measure the aggregate funding position of the UK's defined benefit schemes. The Low Reliance Index uses a discount rate assumption of gilt yields plus 0.5% pa. “Gilts plus” measures are often collectively referred to as funding targets where there is a low level of reliance on the company that ultimately supports the scheme. The Buyout Index reflects PwC’s view of indicative market pricing based on their current experience of completing buy-in and buy-out transactions.
2. The PwC Indices focus on liability value measures which schemes may be targeting in the long-term. These differ from other liability value measures, for example, those used for the purposes of preparing accounting disclosures or for the calculation of the levy payable to the Pension Protection Fund.
3. The PwC Indices covers the whole universe of around 5,000 UK defined benefit pension funds. Some other market trackers cover just a minority subset (e.g. 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 Kevin Scott on +44 7561 789 014 / kevin.y.scott@pwc.com or Hannah Brook on +44 7483 421 730 / hannah.brook@pwc.com
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