United Kingdom

In Depth: Pension scheme funding - an analysis of completed valuations

This edition of In Depth analyses the approaches to and results of UK pension schemes' funding valuations completed up to July 2016.

The analysis sets out the positions of schemes at effective dates to June 2015, 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:

  • Average discount rates in excess of gilt yields were greater than used in last year’s valuations but were at similar levels to those of three years ago.

  • Trustees continued to adopt less prudence where they considered the employer's covenant to be strong, in line with the Regulator's encouragement to adopt an integrated approach.
  • Mortality assumptions did not strengthen, for the second year in a row.

  • 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 and the proportion of schemes in surplus against their technical provisions at their valuation date were similar to last year, although, as assets and liabilities increased significantly over this period, a typical scheme’s deficit is likely to have increased in monetary terms.

  • For schemes in deficit, the average recovery period increased in comparison with the previous year and was significantly longer than might have been anticipated at the previous triennial valuation.

  • How funding levels have moved over recent months has been highly dependent on investment strategy and particularly the level of interest rate and inflation hedging.

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