DB End Gauge
Our monthly index provides an estimate of the average time for UK pension schemes to reach a sufficient level of funding to buyout their liabilities with an insurance company.
As of 31 May 2022, the index is 8.3 years.
As of 31 May 2022, the DB End Gauge index shows the average time for UK pension schemes to be able to buyout their liabilities is 8.3 years.
Changes in the index over time will illustrate the positive and negative impacts of various factors on pension scheme journeys and highlight the need for the strategy to incorporate monitoring and trigger points for actions to ensure that schemes remain on course for their endgame.
The index decreased significantly over the month to 31 May 2022 due to a rise in gilt and swap yields and a slight fall in long-term inflation expectations reducing liability values. A volatile month for financial markets saw growth assets settle at a similar level to the start of the month.
DB End Gauge is calculated using publicly available data collected from the annual accounts of the FTSE 350 companies. As such, it covers around 160 companies with DB pension arrangements and is calculated as the average of the estimated time to reach buyout funding for each scheme.
In calculating the time to reach buyout funding for each scheme, we have made a number of assumptions using the available information. Liability values on a buyout basis have been estimated by approximately updating the results shown in the annual accounts using Barnett Waddingham’s view of current average buyout pricing.
Asset values have been estimated using index returns and the asset split disclosed in the pension disclosures. The current level of deficit contributions have been estimated based on information set out in the pension disclosures and these are assumed to continue until buyout funding is reached.
The calculations make no allowance for buyout market capacity constraints and assume that each scheme’s data and benefit documentation are transaction ready at the point that buyout funding is reached.
Over the last few years, corporate sponsors of UK defined benefit (DB) pension schemes have been grappling to determine the best strategy for their schemes. The Pensions Regulator’s new code on scheme funding, expected in 2022, will increase the focus on schemes’ long-term objectives and link this to the shorter-term funding strategy.
There are several options for the long-term objective:
For most sponsors, an endgame that gets the scheme off its balance sheet, with appropriate benefit security for members, is the ideal solution – but it is also the most expensive solution due to the cost of transferring all risks to a third party. Sponsors seeking such an endgame will need to think carefully about the journey to get there, ensuring that cost and risk are managed within acceptable levels along the way.
Each year we undertake unique, independent analysis into the DB pension schemes of FTSE350 companies, exploring how they have coped against the year's challenges and what the trends are as they navigate their endgame journeys. Our analysis is free to read and useful for benchmarking your own scheme's standing against the wider landscape.
"DB End Gauge provides an estimate of the average time for UK pension schemes to reach a sufficient level of funding to buyout their liabilities with an insurance company"