The UK’s 5,000 corporate defined benefit (DB) pension schemes maintained a record £400bn surplus this month according to PwC’s Low Reliance Index. 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.
PwC’s Buyout Index also shows that, on average, schemes continue to have sufficient assets to ‘buyout’ their pension promises with insurance companies, recording a surplus of £260bn in June.
In light of their sustained surpluses, sponsors and trustees now have an opportunity to make sure that they reap the benefits of advancements affecting the pensions industry, including Artificial Intelligence (“AI”) and Generative AI.
John Dunn, head of pensions funding and transformation at PwC UK, said:
“With funding levels of the UK’s DB schemes remaining stable and strong, sponsors and trustees need to focus on forward planning and efficient running of their pension schemes. Technology has already played a critical role in the last few years to increase real time information and help schemes make decisions more quickly. But another wave of change is coming. AI is increasingly a part of our daily lives - from automation to augmentation and beyond.
“The key question for sponsors and trustees is - how can they harness AI’s power to benefit their pension schemes? Our research shows that, by 2030, AI will provide $15.7 trillion of global economic growth. Those pension schemes, both in the private and public sector, that take the lead now will ensure a share of this growth can benefit their members.”
Gavin Sharma, head of pensions technology and AI at PwC UK, added:
“It’s clear that many people believe an AI related change is on the horizon. During our most recent pensions Virtual Ideas Exchange event, over 70% of respondents said they expect AI to substantially impact the pensions industry within the next five years.
“A recent PwC survey found that sectors with highest AI penetration are seeing almost fivefold (4.8x) greater labour productivity growth. We’re already seeing AI being used in pension schemes to increase operational efficiency - from automating data processes to drafting scheme documentation. And in the near future we can also expect to see AI being used to personalise the member experience and to bring insights that enhance decision making.
“It can be easy to get swept up in the excitement of AI opportunities, and being aware of potential risks and having the right governance processes in place are key - particularly given the large amount of sensitive data held by pension schemes. With most organisations being relatively early on in their AI journey, there is a lot for sponsors and trustees to consider - but the rewards on offer once they have harnessed its opportunities are likely to be considerable.”
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 |
June 2024 |
1,430 |
1,030 |
400 |
139% |
1,170 |
260 |
122% |
May 2024 |
1,440 |
1,040 |
400 |
138% |
1,185 |
255 |
122% |
April 2024 |
1,405 |
1,015 |
390 |
138% |
1,160 |
245 |
121% |
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% |
ENDS
Notes to editors:
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.
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.
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.
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.
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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