The health of UK DB schemes has reached a positive turning point, according to analysis by Hymans Robertson of DB pension schemes submitting valuations in 2022. The leading pensions and financial services consultancy’s Pension Scheme funding: Benchmarking Analysis report shows that the number of schemes in surplus increased significantly from the previous year (27% to 39%), recovery plans continue to shorten (now on average less than 6 years) and funding bases strengthen.

Commenting on the benchmarking analysis, Laura McLaren, Partner, Hymans Robertson, says:

“The percentage of schemes in deficit has fallen from 73% to 61%, the average ratio of assets to technical provisions has risen from 89% to 94%, and the average ratio of assets to buy-out has also risen, from 68% to 75%. As well as all these encouraging movements, there’s more improvement to watch out for in more recent valuation submissions, as increases in funding positions over the last eighteen months from rising gilts yields and strong asset returns won’t filter through to the Regulator’s statistics for another two years. The Regulator has released analysis estimating that over 75% of tranche 18 schemes - generally schemes with valuation dates of 31 December 2022 and 31 March 2023 - will be in surplus.

“We encourage schemes to use our benchmarking analysis to compare their current approach and understand regulatory expectations. TPR is again segmenting schemes by funding strength, covenant and scheme maturity to set out expectations on recovering deficits and long-term planning. Many trustees and sponsors are now focusing on the end game, turning their attention to how they lock in their favourable positions and reduce risk. It has already been an extremely busy year for the bulk annuity market.

"We recognise that not everyone is in the same boat, as there remains a minority of schemes with material deficits and longer recovery plans.

“As the industry awaits the final DB funding regulations and code, this analysis also offers insight into how DWP and TPR might ultimately finalise the detail and set the ‘Fast Track’ parameters. From funding improvements to policy direction, it is clear that the world has shifted significantly since the initial ideas were set out in 2020.”

A copy of the fourth annual benchmarking report can be found here.