DB schemes close to full-funding, though deficit challenges remain

More than half of the UK defined benefit schemes remain in deficit, according to the latest Pension Protection Fund (PPF) purple book, although the overall funding level has improved.

The aggregate funding level of schemes rose to 99% at 31 March, from 97% the same time the previous year and 57% of schemes were in deficit, with an aggregate deficit of £160 billion.

Stephen Wilcox, chief risk officer at the PPF, commented: “While many schemes have reduced their investment risk, the number of schemes in deficit is more than double what it was in 2006 and the economic circumstances much less favourable. The funding ratio of schemes in deficit is particularly vulnerable to economic shock.

The trend for de-risking has continued, with only 24% of scheme assets invested in equities, compared to 27% of scheme assets in 2018 and 61% in 2006.

However, underfunded schemes tend to be the ones invested more heavily in equities. Overfunded schemes have on average 69% of their assets in bonds, compared to just 25% for those schemes with a funding ratio below 50%.

The proportion of schemes closed to future accrual also rose to 44%, from 41% in 2018.