In Depth: Pension scheme funding - an analysis of completed valuations
This edition of In Depth sets out the approaches to and results of UK pensions schemes' funding valuations completed up to July 2015. The analysis sets out the positions of schemes at effective dates to June 2014, and considers the assumptions adopted for assessing schemes' liabilities, and formulating recovery plans where schemes were found to be under-funded.
Our key findings this year are:
- The latest completed valuations were generally carried out at effective dates with relatively benign financial conditions, compared to the periods before and after the valuation dates.
- In line with the step change first identified two years ago, a majority of schemes are using a yield curve approach to value liabilities, rather than a 'flat' discount rate, including many smaller schemes.
- Average discount rates in excess of gilt yields reduced slightly.
- Trustees continued to adopt more prudent discount rates where they considered the employer's covenant to be weak, in line with the Regulator's encouragement to adopt an integrated approach.
- Mortality assumptions, for once, did not strengthen.
- Schemes continue to 'tidy up' their data to get a more accurate assessment of the funding position but also in anticipation of needing to enter into a transaction at some point.
- The average funding level was significantly higher than in the previous year and a much higher proportion of schemes were in surplus against their technical provisions at their valuation date.
- For schemes in deficit, the average recovery period reduced significantly in comparison with the previous year but was still longer than might typically have been anticipated at the previous triennial valuation.
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Page last updated 18 August 2015
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