Commenting on The Pensions Regulator (TPR) annual funding statistics for DB and hybrid schemes, released today, Laura McLaren, Partner & Head of DB Actuarial Consulting, said:

“The Pensions Regulator’s annual funding statistics, covering the latest tranche of submissions in the period to 23 June 2023 for valuations between September 2020 to September 2021, makes for interesting reading against the background of a changing DB funding regime.

The statistics show 38.7% of all DB pension schemes in surplus, compared with just 27% the year before. For schemes in deficit, recovery plans are continuing to shorten – the average plan is around five years.

The numbers signal an important shift in funding levels and a trend we know will have accelerated into 2023 as government bond yields have increased materially and asset returns have been strong.

TPR estimates that 76% of schemes with valuations at 31 March 2023 are likely to be in surplus on an ongoing funding basis. Around a quarter of all DB schemes may have sufficient assets to buy out their liabilities with insurance companies; this figure is likely to rise sharply over the coming years.

These changes raise interesting questions as TPR looks to finalise its DB funding regime ahead of 1 April. It remains to be seen how the changes over the past 12 months bear on the regime that comes into force.

The latest data underscores that the world has changed significantly since the initial ideas for the revised DB funding code were set out in 2020, and TPR and DWP must take the time to make sure the final regulations and code are fit for purpose. It would be disappointing if the changes distract focus or disrupt well-planned scheme-specific approaches because they’re not flexible enough, or because they place a disproportionate compliance burden on schemes.”