Over 60% of schemes are in surplus - buying out may be closer than you think!

The Pensions Regulator (TPR) recently released its analysis supporting the 2022 Funding Statement. The analysis looks at the expected funding position of schemes with valuation dates between 22 September 2021 and 21 September 2022.

The analysis suggests that schemes will show improved funding levels from those reported three years ago and that current recovery plans will be more than sufficient to address any remaining deficits. One striking headline is that TPR expects 61% of these schemes to be in surplus at 31 March 2022. And of those still in deficit, 68% should be able to maintain or even reduce deficit recovery contributions.

Key results

Even with the position of individual schemes varying greatly, in general funding has improved. A combination of significant investment returns over the last 3 years and deficit reduction contributions paid has mostly offset the increasing value being placed on liabilities due to falls in nominal yields and increasing inflation expectations.

TPR’s analysis does not allow for the effects of Brexit, the COVID-19 pandemic or the Russian and Ukrainian conflict, which could have impacted covenant strength and may lead to changes in the assumption being used to calculate the liabilities.  However, schemes undertaking valuations at the moment are very likely to find themselves in a better position than they expected to.  

With recent competitive pricing in the bulk annuity market, many schemes may be much closer to buy-out than expected. For example, on one scheme we saw a c.10% reduction in premium from a single insurer in just an eight-week period from the end of February due to market movements, which on a net basis (i.e. after factoring in the performance of the scheme’s assets) was very positive for them.  In some instances, the ability to buy out may come as a surprise: a buy-out aspiration that was 5+ years out has suddenly become a shorter-term reality and, perhaps unsurprisingly, the level of “transaction readiness” is behind where it needs to be.  


What next?

If you now find yourself unexpectedly in a position to be able to buy-out, especially if you are ahead of schedule, you may not have the necessary plans in place.

Our bulk annuity team and our DB Navigator framework can help trustees and sponsors think strategically and perhaps take advantage of the opportunities that improved funding levels may present, as well as make sure you have a plan to be transaction ready.

We can help you develop an integrated journey plan to get you to your ultimate endgame, monitor your progress against that, help you make the big decisions along the way and ensure you are ready when the time is right.

DB Pensions Conference

Catching up with what you may have missed from our most recent DB conference.

Watch now

Stay up to date

Get the latest independent commentary and exclusive insights from a range of experts at the forefront of pensions, investment, insurance and risk – tailored to your preference.

Subscribe today