The Purple Book published by the Pensions Protection Fund (PPF) shows that defined benefit (DB) pensions schemes with fewer than 1,000 members make up for 80% of the total number of schemes under the lifeboat’s protection, but only around 10% of total assets, liabilities and members.
The Purple Book, also known as the Pensions Universe Risk Profile, is a yearly publication by the PPF that provides a comprehensive analysis of the UK’s DB pension landscape.
This year’s book showed a reduction in the number of schemes in the PPF’s universe from 5,063 as at 31 March 2023 to 4,974 as at 31 March 2024.
It shows that schemes with more than 5,000 members make up almost 75% of each of total assets, liabilities, and members, while only forming 6% of the total number of schemes in The Purple Book 2024 dataset.
Conversely, schemes with fewer than 1,000 members make up 80% of the total number of schemes but only around 10% of total assets, liabilities, and members.
Funding
UK scheme funding improved in the year to 31 March 2024 to a surplus of £219.2bn compared to a surplus of £206.9bn. The aggregate funding ratio meanwhile increased to 123.1% from 120.1%.
The PPF said the increase in the aggregate funding ratio is mainly the result of market movements, primarily the result of higher gilt yields driving down liability values.
It added that on an estimated full buy-out basis, the net funding position improved from a deficit of £133.3bn the year before to a deficit of £69.5bn. The funding ratio increased from 90.3% to 94.4%.
The PPF said the funding ratios it has estimated as at 31 March 2024 are calculated from funding information supplied in scheme returns submitted to The Pensions Regulator (TPR).
Change in methodology
The PPF has used a new methodology this year, and all figures for previous year have been updated to reflect this change.
The fund said: “We now use more granular asset allocation data collected in annual scheme returns by The Pensions Regulator (TPR), applying a wider range of relevant market indices in our asset roll-forward calculations. In addition, where previously we did not take account of cashflows in and out of schemes – particularly benefit payments – our calculations now include estimates of these.”
It added that its figures are as usual based on data reported to TPR in scheme returns, but it now follows the regulator’s new enhanced analysis of scheme status data submitted which was not used in the previous year.
Morten Nilsson, chief executive officer of Brightwell said: “The PPF Purple Book once again highlights the highly fragmented nature of UK DB schemes. It’s startling that schemes with fewer than 1,000 members make up 80% of the total number of schemes but only around 10% of total assets, liabilities, and members.”
He added that while the government is currently focussed on consolidation within Local Government Pension Schemes (LGPS) and defined contribution (DC), there’s “huge opportunity” to improve efficiency and value for money within the DB sector.”
LCP’s partner Steve Webb, meanwhile, urged the industry against “overreacting” to PPF’s figures showing a decrease of estimated buyout funding for UK DB schemes, from 112% in the 2023 Purple Book to 94.4% in the 2024 version, which mostly reflects 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 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.”
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