The Pension Protection Fund (PPF) has today published the Purple Book 2024 which shows the strong net funding position of the universe of defined benefit (DB) pension schemes has remained largely stable over the past year.
The Pensions Universe Risk Profile, commonly known as the Purple Book, is now in its 19th edition and provides the most comprehensive picture of the UK’s DB pension landscape. It contains the latest data and analysis on key DB trends, including scheme funding, membership, asset allocation, de-risking and more.
Importantly this year, the PPF has applied two changes: firstly, an enhanced roll-forward methodology to calculate assets and liabilities which now uses a wider range of market indices, more granular asset allocation data, and estimates for benefit cashflows; secondly, new enhanced scheme status data as analysed by The Pensions Regulator (TPR). These updates apply to this year’s figures, together with a restatement of 2023 figures for ease of comparison.
The funding position of DB schemes, on a section 179 basis as at the end March 2024, showed a net surplus of £219bn and a funding ratio of 123 per cent, largely consistent with last year’s (restated) figures. The net deficit of schemes that are in deficit, on the same basis, fell to £21bn. When estimated on a full buy-out basis – to secure full scheme benefits – the funding ratio rose over the year to 94 per cent.
This year’s data shows the number of DB schemes in the universe has fallen by fewer than 100 over the year, down from 5,063 to 4,974 as schemes wind up, merge, or claim on the PPF. This was despite a record year for risk transfer deals with £60bn of transactions completed in 2023.
The DB universe remains highly fragmented with a long tail of smaller schemes. 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. Most schemes – 93 per cent – are closed to new members; out of 8.8 million members, only 0.7 million remain active.
Schemes in the universe have continued to invest a large proportion (70 per cent) of their assets in bonds, but there has been a further reduction in both the overall proportion of assets held in equities – down to almost 15 per cent – and within this, less than 7 per cent allocated to UK equities. By contrast, there has been a sharp increase in the proportion invested in private equity – up to almost 44 per cent.
“After the dramatic improvements to DB funding levels in recent years, the past year has been marked more by stability. While aggregate scheme funding remains strong – with a net surplus of £219bn – risks do remain, underscoring the vital importance of sound endgame planning. The DB universe continues to mature as evidenced by de-risking trends with bond allocations up and further reductions to equity holdings. By refining our roll-forward methodology and using updated data, this year’s Purple Book provides an enhanced picture of DB scheme funding in absolute terms,” said Shalin Bhagwan, Chief Actuary at the PPF.