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 2021.

The analysis sets out the positions of schemes at effective dates to June 2020, 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 77% of those schemes had a journey plan to achieve the target by the time the scheme is significantly mature;
  • 78% of schemes took an integrated approach to risk management that included consideration of downside scenarios and contingency planning;
  • 81% of schemes used a third party/specialist assessment of the employer covenant;
  • 74% of schemes hedged at least 70% of their interest rate risk, and the same percentage hedged at least 70% of their inflation risk;
  • Average discount rates in excess of gilt yields were similar to those used last year and those of three years ago – although gilt yields had reduced, significantly, over both periods;
  • The average difference between RPI and CPI assumptions fell to 0.64% p.a., reflecting the consultation on the future of RPI, which was undertaken over the period;
  • 53% of schemes either carried out a data cleaning exercise prior to the valuation or planned to carry out a data cleaning exercise;
  • 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 current funding regime in 2005, although there were significant differences for schemes with valuation dates before and after the onset of the Covid-19 pandemic;
  • For schemes in deficit, the average recovery period, of 5.1 years, was 0.7 years shorter than three years ago, when many schemes’ previous valuations were undertaken - this is a smaller reduction than might have been expected, reflecting the financial impact of the onset of the Covid-19 pandemic;
  • An element of additional return in excess of the discount rate was allowed for in 59% of recovery plans;
  • Since the dates of these valuations, average funding levels improved significantly, particularly since March 2020; and
  • The Pensions Regulator encourages trustees to consider stress testing or scenario planning for possible future economic environments, and considers that this is especially important for schemes where Covid-19 has a continued material impact on the scheme sponsor.

Our analysis covers 98 completed valuations carried out by Aon consultants for our clients, under the scheme specific funding regime, covering effective dates from September 2019 to June 2020. 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 2021 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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