United Kingdom

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

This In Depth sets out the approaches to and results of UK pension schemes' funding valuations completed up to July 2020.

The analysis sets out the positions of schemes at effective dates to July 2019, 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:

  • A long-term funding target was used in addition to a technical provisions target by 67% of schemes, and 74% of those schemes had a journey plan to achieve the target by the time the scheme is significantly mature
  • 71% of schemes took an integrated approach to risk management that included consideration of downside scenarios and contingency planning
  • 86% of schemes used a third party/specialist assessment of the employer covenant
  • 85% of schemes hedged at least 70% of their interest rate risk; the same percentage hedged at least 70% of their inflation risk
  • Average discount rates in excess of gilt yields were lower than those used last year and those of three years ago – gilt yields had also reduced significantly over the three-year period
  • Over 50% of schemes carried out an analysis of experience in respect of one or more demographic assumptions other than mortality
  • A significant number of schemes are carrying out data cleaning exercises prior to the valuation
  • The average technical provisions funding level and the proportion of schemes in surplus were both higher than for any previous year since the start of the funding regime
  • For schemes in deficit, the average recovery period, of 4.5 years, was 2.2 years shorter than three years ago, when many schemes’ previous valuations were undertaken - this is a bigger reduction than might have been expected
  • An increased proportion of valuations (almost two-thirds) allowed for an element of additional return in excess of the discount rate in the recovery plan, and the average allowance increased
  • Since the dates of these valuations, average funding levels improved and then dipped significantly, following the outbreak of COVID-19, before partially recovering
  • The Pensions Regulator has recognised the challenges the current environment brings but believes the principles outlined in its consultation on a revised Code of Practice – including a focus on long-term funding targets – remain the right ones.

Our analysis covers 130 completed valuations carried out by Aon consultants for our clients, under the scheme specific funding regime, covering effective dates from September 2018 to July 2019. The data also include valuations carried out by Aon consultants with earlier effective dates.

We consider:

  • The funding landscape – the long-term funding target and use of integrated risk management
  • The technical provisions – the discount rate, inflation, mortality, other demographic assumptions and the funding level
  • The recovery plan – the recovery period, contingent security and the assumptions; and
  • Looking ahead – to 2020 valuations and beyond

If you would like to receive a copy of this In Depth, please contact us.


Aon Solutions UK Limited is authorised and regulated by the Financial Conduct Authority.

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