The Pension Protection Fund (PPF) has revealed that the number of PPF-compliant contingent assets has continued to fall, with the total number of deals now around a third lower than five years ago.
Running out of charge?
Between the 2011/12 and 2016/17 levy years, the number of parent/group company guarantees fell from 764 to 452. Trustees require ever greater diligence in considering PPF-compliant assets as an approach to reducing risk in their scheme, as the PPF acknowledge that the fall is likely to be driven by their more robust approach to certification.
"The ultimate goal towards which many closed schemes will be gearing their de-risking efforts is securing scheme liabilities with an insurer."
However, the number of contingent assets comprising security over cash, property or other assets has remained relatively stable over the past five years. 128 of these were certified in 2016/17.
Trustees looking to certify contingent assets have until midnight on 31 March 2017 to submit the relevant documents on the Exchange system. Those seeking to implement new arrangements should be aware that given the more robust requirements, they will need to get to work now to make sure this deadline is met.
The 2016 Purple Book also underlined that trustees are continuing to look to repair funding deficits with very substantial contributions. In the first six months of 2016, £10.5 billion of special contributions were paid out by large schemes. This compares with £12 billion and £11 billion for the whole of 2014 and 2015 respectively.
Between March 2014 and March 2016, the aggregate s179 funding ratio for schemes in the PPF universe worsened from 97% to 86% as market conditions moved against them. Employers can expect trustees to ask for higher contributions in light of the deterioration in funding positions and the evidence is that this may already be happening.
For trustees looking to mitigate their PPF levies by certifying deficit contributions, the deadline is 5pm on 28 April 2017. As part of the 2017/18 levy guidelines, the PPF have clarified the nature of expenses to be included as part of the certification process.
Signalling the end game
The ultimate goal towards which many closed schemes will be gearing their de-risking efforts is securing scheme liabilities with an insurer. The Purple Book reveals that around £120 billion worth of risk transfer deals have been completed since 2007, highlighting the popularity of buy-ins, buy-outs and longevity hedging.
As significant as the risk transfer figure is, the PPF estimates that at 31 March 2016 the aggregate buy-out deficit stood at £780 billion. This position is likely to have deteriorated further over 2016 given recent developments. However, there may still be opportunities for a well-prepared trustee board.