Yesterday the Pension Regulator came out with the heartening news that our pension schemes are in surplus of the most part. Corporate Adviser report David Hamilton, chief actuary at Broadstone who tells us

“This analysis formally evidences the step change improvement in funding seen by many DB schemes following the Truss mini-budget.”

According to Keating and Clacher, one third of assets in private Defined Benefit Pension Plans were sold to meet collateral calls were sold following the Truss mini-budget.

This has been updated

The total loss of value of assets between March 2022 and July 2023 ( the date at which rebalancing finally ended) was £710 billion – 39% of the earlier asset value – (source verified)

Corporate Adviser passes on information

More than six in 10 defined benefit schemes are now in surplus according to the latest data from The Pensions Regulator (TPR).

Its annual review of schemes valuations shows that this is a significant increase on the 27 per cent in surplus three years previously, and the 47 per cent in surplus on a comparable basis last year.

Common sense tells me that an event that led to a third of assets being sold to meet calls for money is not improving funding but decreasing funding by a third.

The notional cost of meeting pensions payable to ordinary people has not decreased, merely the amount accountants would have us put by to meet it. This amount is down to high 30 year Government bond  (gilt) yields, yields that are a 27 year high.

These gilt yields come with the value of the gilts themselves being depressed. In short we have theoretical surpluses but in practice less money in the pension funds to meet payments due in years and decades to come.

More granular information from TPR includes

Median recovery plan lengths fell from 5.3 to 3.8 years, reflecting stronger balance sheets.

Meaning that Trustees demands on employers for extra money to meet deficits is coming to an end.

while average buyout funding levels increased from 68 per cent to 91 per cent according to TPR.

Meaning that if there is capacity in our insurance sector to take on pension management , the funds are within 10% of being well enough funded to hand over assets and liabilities.

Does this sound like good news? I attended a seminar yesterday where the mood of those attending was that “running on” was on the cards (albeit they were large schemes). Some schemes see the surpluses they are finding themselves in  *notionally” as the cue for payback to employers who funded the LDI programmes (that went so wrong in 2022).

Or did they go wrong at all? Is David Hamilton’s statement that the Truss mini-budget jolted DB plans towards surplus a secret thank you to the people who had to be bailed out by the Bank of England.

It is an inglorious anniversary this month, it is the third anniversary of the massive sell-off of pension assets and the advance of high gilt yields and with them high interest rates. It is not an anniversary to be celebrated – whatever the tone of the Pension Regulator’s research and analysis (read it all here).

We should not be congratulating our regulator or those who drove pension schemes into the cul-de-sac of September 2022. This was the end game playing out but it closed the door on DB pension plans coming back to help this country’s economies as well as its workers out.

It is not right that we celebrate like this (David Hamilton again)

“More than two thirds of DB members should now have been in a scheme with a funding surplus at their last valuation with increasingly prudent approaches also being built in.

“We expect this level of security to continue to increase, which is fantastic news for members, although it may be hidden slightly in future analysis by changes to the new funding regime.”

Hamilton also noted that despite the improvements, around 250 schemes still extended their recovery plans. He says:“Even in a ‘good’ year, a significant number of schemes will face specific challenges. Continuing to understand risks, monitor developments and have contingency plans in place remain invaluable tools to trustees in managing their schemes.”

We should remember we have a PPF fund in place to help any of the schemes that are sponsored by employers who cannot meet demands and we should expect that out of over 5,000 schemes , a proportion will be in trouble at any time. The surplus currently being carried within the PPF on its own liabilities runs

The PPF’s August statistics on DB plans it provides protection for is now published

These numbers may look heroic, but they are infact an epitaph to DB pensions not a statement that could be or is celebrated.

It is a miserable not a “celebration  worth”  table. It is sad that pension schemes are still measuring themselves in term of solvency. Over these past three years we have seen high inflation which has not been matched by pension payments., in real terms, people’s occupational pensions have fallen (unless in the public sector). This is the price we are paying for what happened three years ago.

With the massive amounts from employers to meet “recovery plans” with positive returns on growth assets and with well run schemes, we should now be talking about meeting inflation in full going forward. What we are celebrating is failure and we should not think for a moment that what happened because of leveraged LDI was and is good news.

De-risking made the opportunity pension schemes should have had, an impossibility. The Truss mini-budget was a disaster for pensions and our economy.