Scheme funding statistics

Transcription

1 May 2014 Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes

2 Contents Overview 3 Tranche 7 3 Market conditions 3 Funding 4 Discount rates 5 Life expectancies and mortality assumptions 6 RPs and contributions 7 Forms of contingent security 8 Appendix: Data coverage 10 Methodology 10 Schemes in the data set 11 Table 1.1 Number of valuations analysed by cycle and tranche (all tranches) 11 Table 1.2 Concentration by scheme characteristics (schemes in deficit and surplus, all tranches) 12 Funding and other security arrangements (schemes in surplus and deficit, all tranches) Table 2.1 Key average funding ratios (surplus and deficit schemes, all tranches) 15 Table 2.2 Distribution of key funding ratios on various bases (schemes in surplus and deficit) 16 Table 2.3 Average ratio of assets to TPs by scheme characteristics (schemes in surplus and deficit, all tranches) 18 Table 2.4 Average ratio of TPs to buyout liabilities by scheme characteristics (schemes in surplus and deficit, all tranches) 21 Table 2.5 Average ratio of TPs to liabilities estimated on a reference basis by scheme characteristics (schemes in deficit only, Tranches 4 and 7) 24 Table 2.6 Use of contingent assets (Tranche 7, surplus and deficit schemes) 25 Table 2.7 Use of contingent assets by scheme characteristics (Tranche 7, surplus and deficit schemes) 26 Table 2.8 Schemes with contingent assets (Tranches 4 to 7) 28 RPs and contributions (schemes in deficit only) Table 3.1 Distribution of RP lengths (schemes in deficit only, all tranches) 29 Table 3.2 Distribution of RP lengths (for schemes in deficit submitting valuations in respect of both Tranches 4 and 7) 29 Table 3.3 Distribution of DRC schedules (schemes in deficit only, all tranches) 30 Table 3.4 Average RP length by scheme characteristics (schemes in deficit only, all tranches) 31 Table 3.5 Average annual contributions as a percentage of liabilities estimated on a consistent basis split by scheme characteristics (schemes in deficit Tranches 4 and 7) 33 Discount rates (schemes in deficit only) Table 4.1 Average nominal discount rate and outperformance by tranche (schemes in deficit only, all tranches) 34 Table 4.2 Average real discount rate and outperformance by tranche (schemes in deficit only, all tranches) 35 Table 4.3 Average nominal SEDR by scheme characteristics (schemes in deficit only, all tranches) 36 Table 4.4 Average outperformance of the nominal SEDR over conventional 20 year UK gilts by scheme characteristics (schemes in deficit only, all tranches) 38 Table 4.5 Average outperformance of the nominal SEDR over greater than 15 year AA rated corporate bonds by scheme characteristics (schemes in deficit only, all tranches) 40 Table 4.6 Average real SEDR by scheme characteristics (schemes in deficit only, all tranches) 42 Table 4.7 Average outperformance of the real SEDR over greater than 5 year index-linked UK gilts by scheme characteristics (schemes in deficit only, all tranches) 44 Table 4.8 Distribution of the nominal SEDR (schemes in deficit only, all tranches) 46 Table 4.9 Distribution of the outperformance of the nominal SEDR over 20 year conventional UK gilts and greater than 15 year AA rated corporate bonds (schemes in deficit only, all tranches) 47 Table 4.10 Distribution of the real SEDR (schemes in deficit only, all tranches) 48 Table 4.11 Distribution of the outperformance of the real SEDR over greater than 5 year index-linked UK gilts (schemes in deficit only, all tranches) 48 Mortality assumptions (schemes in deficit only) Table 5.1 Base mortality tables (schemes in deficit only, all tranches) 49 Table 5.2 Loadings applied to base mortality tables (schemes in deficit only, all tranches) 49 Table 5.3 Q(X) adjustments to base mortality tables (Tranche 7 schemes in deficit only) 50 Table 5.4 Adjustment to base mortality table from valuation date (schemes in deficit only, all tranches) 50 Table 5.5 Size of underpin adopted in combination with various adjustments to base tables (Tranche 7 schemes in deficit only) 51 Table 5.6 Average life expectancies by scheme characteristics, base tables, adjustments to base tables (Tranche 7 schemes in deficit only) 52 Life expectancies (schemes in surplus and deficit, all tranches) Table 6.1 Distribution of life expectancies for current/future male/female pensioners aged 45 and 65, all tranches (surplus and deficit schemes) 54 Table 6.2 Average life expectancies by scheme characteristics (surplus and deficit schemes) 56 Table 6.3 Average change in life expectancies for current male pensioners aged 65 by scheme characteristics Tranche 4 versus Tranche 7 (surplus and deficit schemes) 59 Glossary 61 Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 2

3 Overview This is an update to The Pensions Regulator s annual funding statistics for UK defined benefit and hybrid schemes. The tables in the appendix are prepared in accordance with the UK code of practice for official statistics. The underlying data are sourced from valuations and recovery plans (RPs) submitted to the regulator (by schemes with surplus and deficit positions). The update is based on Tranche 7 schemes (with effective valuation dates falling from 22 September 2011 to 21 September 2012 inclusive). These valuations fall within the third triennial cycle of the scheme funding regime; with due dates for receipt falling within the period December 2012 to December Relative to Tranche 4, Tranche 7 schemes have a higher funding ratio on a technical provisions (TPs) basis and receive higher deficit reduction contributions (DRCs) in nominal terms; while a relatively higher proportion have a form of contingent security. Tranche 7 schemes made use of RP flexibilities, with Tranche 7 RP end dates exceeding that of Tranche 4 plan length by 1.5 years on average; and assume a higher investment return over gilts compared to the average Tranche 4 scheme. Tranche 7 By January 2014 the regulator had received over 1,800 valuations with an effective valuation date for Tranche 7. Of schemes submitting these valuations, 85 had previously submitted valuations in respect of Tranche 4 and Tranche 1. Just under a tenth of Tranche 7 schemes reported a surplus of assets over TPs. Tranche 7 schemes present a more mature profile than Tranche 4, with a relatively higher proportion of schemes comprising deferred pensioner and pensioner members only. In addition, over two thirds: comprise fewer than 1,000 members have less than 100m in liabilities; and have a RP of fewer than 10 years in length. A fifth of schemes have at least one contingent asset (Tables 1.1, 1.2, appendix). Market conditions In the three years to 31 March 2012 (the effective date of many Tranche 7 valuations), yields on corporate and government bonds declined, with index-linked gilts showing negative yields. By the end of 2011, and amidst a climate of uncertainty over interest rates, the UK economy fell back into negative growth. Equity markets improved during the inter-valuation period relative to a low point in March 2009 while the outlook for long-term market-implied inflation (as estimated by the Bank of England) had been revised upward up by the end of the same period. For more detail on high level trends in this document, data summaries (tables) can be found in the appendix. Key figures 80.8: average 1 ratio of assets to TPs for schemes in deficit and surplus 4.28: average nominal single effective discount rate (SEDR) for schemes in deficit only; with 50 of assumptions falling on or between: 3.97 and : average real SEDR for schemes in deficit only; with 50 of assumptions falling on or between 0.77 and years: average life expectancy of a future male pensioner currently aged 45 for schemes in deficit and surplus 8.4 years: average RP length for schemes in deficit. 1 Averages are unweighted means unless stated otherwise. Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 3

4 Funding Due to the sensitivity of assets and liabilities to economic experience and market conditions at the valuation date, developments in the three years to 2011/2012 valuations will have had an impact on funding ratios. Figure 1. Tranche 7 funding levels (TPs basis) by scheme status The average ratio of assets to TPs for Tranche 7 is 81 compared to 74 for Tranche 4. This is generally higher for schemes: that are open to new members with lower insolvency risk/greater sponsor support without a contingent asset; and Closed to future accrual with shorter RPs. For schemes in surplus only, the average ratio of assets to TPs is 110. The average funding ratios on the s179 and buyout bases, 83 and 57 respectively, have also increased compared to the corresponding ratios for Tranche 4. (Tables 2.2, 2.3, appendix.) Figure 1 shows Tranche 7 funding levels on a TPs basis by scheme status for schemes that are: Open, Closed to new members, or Closed to future accrual. The average funding ratio of schemes open to new members is higher than that of schemes closed to new members and schemes closed to future accrual. Scheme status Closed to new members Open Funding ratio () 5 above this point 75th percentile mean 50 of valuations 25th percentile median 5 below this point Source: The Pensions Regulator Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 4

5 For schemes submitting valuations in respect of both Tranche 4 and Tranche 7, the median increase in assets is 41 compared to 28 in TPs. Positive investment returns over the three years to valuation, improved asset values and sponsor contributions will have contributed to increases in scheme assets. The increase in TPs, on the other hand, is a function of lower interest rate conditions in 2011/12 to the extent that Tranche 7 discount rates used to calculated TPs reflect the reduction in yields on gilts and other investment classes. Figure 2 shows how the median single effective discount rate behaves in relation to: conventional 15 and 20 year UK gilt yields and greater than 15 year AA-rated corporate bonds for schemes in deficit in all tranches. Over the period of Tranche 7 (22 September 2011 to 21 September 2012) annualised UK 20 year gilt yields declined overall. On 31 December 2011 and 31 March 2012 (the 2 most common valuation dates) annualised 20-year UK gilt yields were 2.8 and 3.1 respectively while the median SEDR was 4.2 and 4.4 respectively. Figure 2. Median (nominal) SEDR, conventional 15 and 20 year UK gilt yields, greater than 15 year AA corporate bonds (schemes in deficit only, all tranches) Discount rates The average (real) SEDR is 1.12 in Tranche 7 compared to 2.19 in Tranche 4 (Table 4.3, appendix). It is generally higher for schemes: with lower insolvency risk/greater sponsor support with a greater return-seeking assets as a proportion of total assets; and with at least one contingent asset. The average assumed return over gilts is relatively higher for Tranche 7, compared to Tranche 4. The average outperformance of the real SEDR over greater than 5 year index-linked gilts is 1.23 for Tranche 7, compared to 1.11 for Tranche 4 (Tables 4.6, 4.7, appendix). Table 1. Summary of discount rate assumptions for Tranches 4 and 7 Tranche 4 Tranche 7 Real SEDR Real outperformance of SEDR greater than 5 year index-linked gilt Median (nominal) SEDR Conventional 15 year gilts Conventional 20 year gilts 15+ year AA corporate bonds Nominal SEDR Outperformance of SEDR over greater than nominal 20 year gilt Greater than 15 year AA rated corporate bonds Yield () 5 4 Source: The Pensions Regulator 3 2 Sept 05 Sept 06 Sept 07 Sept 08 Sept 09 Sept 10 Sept 11 Date Source: The Pensions Regulator s calculations, Thomson Reuters, FTSE group, Markit iboxx Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 5

6 Life expectancies and mortality assumptions For some schemes life expectancy improvements may have added to the growth in TPs between the tranches. The average assumed life expectancy for a future male pensioner currently aged 45 is 89.9 years (compared to 89.2 years in Tranche 4). Schemes with fewer than 100 members assume a higher average life expectancy on average for a future male pensioner aged 45 than that assumed by schemes in other size groups. (Tables 6.1, 6.2, appendix.) Figure 3 shows the distribution of assumed life expectancies for future and current male pensioners aged 45 and 65,respectively in Tranches 4 & 7. At the median the assumed life expectancy for Tranche 4 was 87.2 years compared to 87.7 years for Tranche 7. Tranche 7 mortality assumptions reflect the widespread adoption of more recently released tables and projections for 2011/12 valuations compared to those used for 2008/9 valuations. 83 of Tranche 7 schemes use s1 tables (made available in 2008); 55 apply a scaling factor or rating to base tables to adjust for scheme experience; 81 use the continuous mortality investigation (CMI) projection model (first published in 2009) to allow for future improvements; while over half of schemes assume a long term rate of improvement/underpin of 1.5 or higher (Tables 5.1, 5.2, 5.4, 5.5, appendix). Figure 3. Distribution of life expectancies for future and current male pensioners aged 45 and 65, respectively Tranche 4: Future male pensioners aged 45 Tranche 7: Future male pensioners aged 45 Tranche 4: Current male pensioners aged 65 Tranche 7: Current male pensioners aged Expected age at death (years) Percentile Source: The Pensions Regulator Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 6

7 RPs and contributions The improvement in the average TPs funding ratio for Tranche 7 over Tranche 4 is accompanied by smaller (absolute) deficits on average, although this may not necessarily be the case at individual scheme level. For schemes in deficit with valuations in both Tranches 4 and 7 the median reduction in deficit over the last cycle is 3. Figure 4. RP length by percentage of return-seeking assets held 30 Smaller deficits on average have led to shorter plans in absolute terms. The mean RP length is 8.4 years for Tranche 7, compared to 9.7 years for Tranche 4. However, Tranche 7 RP end dates exceed that of Tranche 4 by 1.5 years on average, while 50 of DRCs are expected to be paid within 3.6 years at the median. Longer plans tend to be associated with schemes: of larger size with higher insolvency risk/lower covenant support; and with a higher level of return-seeking assets as a proportion of total scheme assets (Tables 3.1, 3.4, appendix). Figure 4 shows the distribution of recovery plan length by return-seeking assets held (grouped by quintile) as a proportion of total scheme assets. Schemes with 19 or less return-seeking assets have an average recovery plan length of 5.6 years compared to 10.1 years for schemes with 80 or more return seeking assets. Recovery plan length or less 20 to to to Return seeking assets as a of total scheme assets Source: The Pensions Regulator Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 7

8 Average 2 annual DRCs as a proportion of liabilities calculated on a reference basis 3 for Tranche 7 schemes is 2.2, compared to 2.5 for Tranche 4 schemes (Figure 4). For the typical scheme in deficit with valuations in respect of both Tranches 4 and 7, average annual DRCs have increased by 14, while liabilities on a reference basis have increased by 29. Figure 5. Shows average annual deficit reduction contributions as a proportion of liabilities calculated on a reference basis. Annual contributions as a proportion of reference liabilities is 2.2 for Tranche 7 schemes on average. For the majority of Tranche 7 schemes annual contributions as a proportion of reference liabilities is less than 4. Figure 5. Average annual contributions as a proportion of liabilities calculated on a reference basis 10.0 Tranche 4 Tranche 7 A higher level of DRCs as a percentage of liabilities on a reference basis is associated with: shorter RPs schemes with a lower level of return-seeking assets as proportion of total assets smaller schemes lower levels of pensioner liabilities as a percentage of total liabilities and schemes without a contingent asset (Table 3.5, appendix). Forms of contingent security In addition to DRCs, just over a fifth of Tranche 7 schemes have additional security in the form of one or more contingent assets which typically, but not always, take the form of guarantees from a sponsor s parent or associated entity. About 12 of schemes have contingent assets that are formally recognised by the Pension Protection Fund (PPF) in the calculation of the PPF risk-based levy. Another 11 of schemes have contingent assets that are not recognised by the PPF but are reported as additional security in support of funding. (Average) annual contributions as of liabilities calculated on a reference basis Tranche 7 average A small minority of Tranche 7 schemes report asset-backed funding arrangements which are integrated with the RP Ratio: Assets to liabilities calculated on a reference basis Source: The Pensions Regulator 2 Mean of the first four years of deficit reduction contributions. 3 Liabilities are estimated using gilts with an excess return of 50 basis points. Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 8

9 Appendix: Tables Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 9

10 Data coverage 1. The data contained in this statistical release were submitted by schemes to the regulator in RPs and scheme returns. 2. The data set builds on previous releases and includes Tranche 7 RPs received by the regulator up to 31 January It also includes data on schemes in surplus for all tranches. 3. The majority of Cycle 2 plans (Tranches 4, 5 and 6) and Cycle 3 plans (Tranche 7) are second and third valuations respectively under the scheme funding regime. However Tranches 1, 4 and 7 (2 and 5, and so on) do not constitute a perfect cohort. The reasons for submitting a RP in Tranche 1 but not Tranche 4 (and in Tranche 2 but not Tranche 5, and so on) are several. They include: where a scheme's assets were less than its TPs in Tranche 1 but exceeded its TPs for its Tranche 4 valuation in Cycle 2 where a scheme may have wound up or be in the process of winding up and/or where a scheme may have transferred to the PPF. Also, some schemes have had their most recent valuations less than three years since their previous valuation. 4. Base data vary slightly in different sections as a result of data coverage, validation, and cleaning. 5. The data count all memberships in schemes with a promise to a pension. As some individuals may have a number of pension entitlements spread over a number of schemes, they may be included more than once in the total memberships under consideration. 6. The trends presented in the Mortality sections are based on current male pensioners aged 65 only, unless otherwise stated. 7. Some Cycle 1 RPs are excluded from the mortality analysis to avoid extensive data processing for a relatively small proportion of schemes. Methodology 1. Weighted averages are weighted by TPs. 2. Owing to the scheme-specific nature of the data, individual data points cannot be presented in some instances. As such, data distributions start and end at the 5th and 95th percentiles respectively, and in some instances group ranges have been broadened to include figures comprising fewer than 10 observations. 3. Figure totals may reflect rounding. 4. Maturity is measured as the ratio of pensioner TPs to total TPs. 5. Two approaches are used by pension schemes in respect of the discount rate assumption: a single investment return approach (single rates approach); and, a different investment returns approach (different rates approach). The former assumes that returns on pre-retirement investments are the same as that of post-retirement investments, while the latter usually assumes that the preretirement investment returns are higher than post-retirement investment returns. For the purposes of comparison, in instances where a different rates approach has been adopted, the regulator has constructed a single effective discount rate (SEDR): a composite rate based on the single rate or, where a different rates approach has been adopted, constructed from both the pre- and postretirement rates. This is calculated as: SEDR = Post-retirement rate + ((1 + Pre-retirement rate)/(1 + Post-retirement rate) -1) * (1 Pensioner TPs/Total TPs) ^ 0.4 x (The parameters 0.4 and 0.56 were developed by trial and error to create an approximate methodology which fits a simple formula to the more complex and scheme-specific interaction of maturity and duration. The regulator does not hold sufficient data to reliably make a more accurate calculation on a scheme-by-scheme basis.) 6. Average annual DRCs summarised in Table 4.5 are calculated as the average of DRCs over the first four years of the RP. 7. Liabilities in Tables 2.5 and 3.5 are calculated on a reference basis using gilts with an excess return of 50 basis points. 8. It is not possible to compare liabilities on different valuation bases in an entirely consistent way. The scheme valuation may exclude the value of insurance policies and expenses whereas s179 will normally include them. Internal sense checking suggests that for the majority of schemes insured, benefits are either included or not held. To the extent that there is any bias, it will tend to make the s179 values look slightly higher relative to TPs than is the case. 9. Covenant groups (1-4) are assigned at the point of initial RP reviews to facilitate prioritisation. These grades may vary to the view taken during case-level intervention, where a wider range of information is taken into account. They are defined: covenant group 1 strong; 2 tending to strong; 3 tending to weak; 4 weak. Covenant grades are not available for surplus schemes. 10. Return-seeking assets in this report include: equities, property, commodities, hedge funds, 50 of corporate bonds, and assets held in the other category. (In the absence of credit ratings, this report assumes that 50 of corporate bonds held rank below investment grade.) 11. Contingent assets are not reported for Tranches 1 to 3 due to the absence of reliable data on non- PPF-recognised assets for these tranches. Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 10

11 Schemes in the data set Table 1.1 Number of valuations analysed by cycle and tranche (all tranches) Cycle Tranche Valuation period Number of RPs analysed Number of surplus schemes analysed September 2005 to 21 September , September 2006 to 21 September , September 2007 to 21 September , September 2008 to 21 September , September 2009 to 21 September , September 2010 to 21 September , September 2011 to 21 September , This data set comprises schemes that have submitted RPs (that is, schemes in deficit on the TPs funding basis as at their valuation date) as well as schemes in surplus. By 31 January 2014, the regulator had received over 1,665 RPs and 172 valuations in respect of schemes reporting a surplus of schemes with Tranche 7 valuations reported valuations in respect of Tranche 4 and Tranche of schemes with Tranche 6 valuations reported valuations in respect of Tranche of schemes with Tranche 5 valuations reported valuations in respect of Tranche 2. Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 11

12 Table 1.2 Concentration by scheme characteristics (schemes in deficit and surplus, all tranches) Tranche (percentage of schemes) Size by number of members Fewer than 100 members to 499 members to 999 members ,000 to 4,999 members ,000 members or more Size by TPs Less than 5m m to 19m m to 99m m to m or greater Maturity (ratio of pensioner TPs to total TPs) Less than to to or greater continued... Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 12

13 Table 1.2 Concentration by scheme characteristics (schemes in deficit and surplus, all tranches) Tranche (percentage of schemes) D&B Failure Score 15 or less to to or more Scheme status Open Closed to new members Closed to future accrual Covenant (schemes in deficit only) Covenant group 4 (Weak) Covenant group 3 (Tending to weak) Covenant group 2 (Tending to strong) Covenant group 1 (Strong) continued... Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 13

14 Table 1.2 Concentration by scheme characteristics (schemes in deficit and surplus, all tranches) Tranche (percentage of schemes) RP length (schemes in deficit only) Fewer than 5 years to fewer than 7.5 years to fewer than 10 years years or greater Return-seeking assets Less than to less than to less than to less than or greater Funding position (TPs) Deficit Surplus Presence of contingent assets No contingent asset At least one contingent asset Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 14

15 Funding and other security arrangements (schemes in surplus and deficit, all tranches) Table 2.1 Key average funding ratios (surplus and deficit schemes, all tranches) Unweighted average Tranche: Weighted 4 average Tranche: Ratio of assets to: Technical provisions s179 liabilities Buyout liabilities Ratio of TPs to: s179 liabilities Buyout liabilities Weighted by TPs. Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 15

16 Table 2.2 Distribution of key funding ratios on various bases (schemes in surplus and deficit) Tranche Ratio of assets to TPs 95th percentile Upper quartile Median Lower quartile th percentile Ratio of assets to s179 liabilities 95th percentile Upper quartile Median Lower quartile th percentile Ratio of assets to buyout liabilities 95th percentile Upper quartile Median Lower quartile th percentile continued... Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 16

17 Table 2.2 Distribution of key funding ratios on various bases (schemes in surplus and deficit) Tranche Ratio of TPs to buyout liabilities 95th percentile Upper quartile Median Lower quartile th percentile Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 17

18 Table 2.3 Average ratio of assets to TPs by scheme characteristics (schemes in surplus and deficit, all tranches) Tranche (percentage of schemes) Size by number of members Fewer than 100 members to 499 members to 999 members ,000 to 4,999 members ,000 members or more Size by TPs Less than 5m m to 19m m to 99m m to m or greater Maturity (ratio of pensioner TPs to total TPs) Less than to to or greater continued... Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 18

19 Table 2.3 Average ratio of assets to TPs by scheme characteristics (schemes in surplus and deficit, all tranches) Tranche (percentage of schemes) D&B Failure Score 15 or less to to or more Scheme status Open Closed to new members Closed to future accrual Covenant (schemes in deficit only) Covenant group 4 (Weak) Covenant group 3 (Tending to weak) Covenant group 2 (Tending to strong) Covenant group 1 (Strong) Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 19

20 Table 2.3 Average ratio of assets to TPs by scheme characteristics (schemes in surplus and deficit, all tranches) Tranche (percentage of schemes) RP length (schemes in deficit only) Fewer than 5 years to fewer than 7.5 years to fewer than 10 years years or greater Return-seeking assets Less than to less than to less than to less than or greater Funding position (TPs) Deficit Surplus Presence of contingent assets No contingent asset At least one contingent asset Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 20

21 Table 2.4 Average ratio of TPs to buyout liabilities by scheme characteristics (schemes in surplus and deficit, all tranches) Tranche (percentage of schemes) Size by number of members Fewer than 100 members to 499 members to 999 members ,000 to 4,999 members ,000 members or more Size by TPs Less than 5m m to 19m m to 99m m to m or greater Maturity (ratio of pensioner TPs to total TPs) Less than to to or greater continued... Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 21

22 Table 2.4 Average ratio of TPs to buyout liabilities by scheme characteristics (schemes in surplus and deficit, all tranches) Tranche (percentage of schemes) D&B Failure Score 15 or less to to or more Scheme status Open Closed to new members Closed to future accrual Covenant (schemes in deficit only) Covenant group 4 (Weak) Covenant group 3 (Tending to weak) Covenant group 2 (Tending to strong) Covenant group 1 (Strong) continued... Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 22

23 Table 2.4 Average ratio of TPs to buyout liabilities by scheme characteristics (schemes in surplus and deficit, all tranches) Tranche (percentage of schemes) RP length (schemes in deficit only) Fewer than 5 years to fewer than 7.5 years to fewer than 10 years years or greater Return-seeking assets Less than to less than to less than to less than or greater Funding position (TPs) Deficit Surplus Presence of contingent assets No contingent asset At least one contingent asset Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 23

24 Table 2.5 Average ratio of TPs to liabilities estimated on a reference 5 basis by scheme characteristics (schemes in deficit only, Tranches 4 and 7) Tranche Tranche Tranche All schemes D&B Failure Score RP length (schemes in deficit only) Size by number of members 15 or less Fewer than 5 years Fewer than 100 members to to fewer than 7.5 years to 499 members to to fewer than 10 years to 999 members or greater years or greater ,000 to 4,999 members Scheme status Return-seeking assets 5,000 members or more Open Less than Size by TPs Closed to new members to less than Less than 5m Closed to future accrual to less than m to 19m Covenant (schemes in deficit only) 60 to less than m to 99m Covenant group 4 (Weak) or greater m to m or greater Maturity (ratio of pensioner TPs to total TPs) Covenant group 3 (Tending to weak) Covenant group 2 (Tending to strong) Presence of contingent assets No contingent asset At least one contingent asset Less than Covenant group 1 (Strong) to to or greater Liabilities are estimated using gilts with an excess return of 50 basis points. Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 24

25 Table 2.6 Use of contingent assets (Tranche 7, surplus and deficit schemes) Number of schemes (holding at least one) Percentage of schemes (holding at least one) 21.7 of Tranche 7 schemes hold at least one contingent asset. All contingent assets PPF-recognised contingent asset Contingent asset reported in support of funding (non-ppf-recognised) All contingent assets PPF-recognised Type A Type B and C Non-PPF-recognised Property PPF-recognised contingent assets fall into three categories: Type A: guarantees provided by the parent/group companies to fund the scheme, most commonly guarantees to cover a pre-arranged percentage of liabilities. Type B: includes security over cash, UK real estate and securities Type C: includes letters of credit and bank guarantees. There are some cases in which a contingent asset that is reported in the RP has not been formally recognised by the PPF in support of the scheme s levy calculation. These contingent assets may, for example, take the form of security over property, escrow accounts or parental/ group guarantees, and are referred to here as non-ppfrecognised. Parental guarantee Escrow, cash or charge over other asset (excludes property), or other (eg letter of credit) Total schemes 1, Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 25

26 Table 2.7 Use of contingent assets by scheme characteristics (Tranche 7, surplus and deficit schemes) Percentage of schemes PPF-recognised Non-PPF-recognised All contingent assets Percentage of schemes PPF-recognised Non-PPF-recognised All contingent assets Size by number of members Fewer than 100 members to 499 members to 999 members ,000 to 4,999 members ,000 members or more Size by TPs Less than 5m m to 19m m to 99m m to D&B Failure Score 15 or less to to or greater Scheme status Open Closed to new members Closed to future accrual Covenant (schemes in deficit only) Covenant group 4 (Weak) m or greater Maturity (ratio of pensioner TPs to total TPs) Less than Covenant group 3 (Tending to weak) Covenant group 2 (Tending to strong) to Covenant group 1 (Strong) to continued or greater Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 26

27 Table 2.7 Use of contingent assets by scheme characteristics (Tranche 7, surplus and deficit schemes) Percentage of schemes PPF-recognised Non-PPF-recognised All contingent assets RP length Fewer than 5 years to fewer than 7.5 years to fewer than 10 years years or greater Return-seeking assets Less than to less than to less than to less than or greater Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 27

28 Table 2.8 Schemes with contingent assets (Tranches 4 to 7) Tranche 4 Tranche 5 Tranche 6 Tranche 7 All contingent assets (percentage of schemes) Schemes with at least one PPF-recognised contingent asset Schemes with at least one contingent asset reported in support of funding (non-ppf-recognised) Schemes with at least one contingent asset PPF-recognised (percentage of schemes) Type A Type B and C Non-PPF-recognised (percentage of schemes) Property Parental guarantee Escrow, cash or charge over other asset (excludes property), or other (eg letter of credit) Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 28

29 RPs and contributions (schemes in deficit only) Table 3.1 Distribution of RP lengths (schemes in deficit only, all tranches) RP length (years) Tranche 1 Tranche 2 Tranche 3 Tranche 4 Tranche 5 Tranche 6 Tranche 7 95th percentile Upper quartile Median Lower quartile th percentile Table 3.2 Distribution of RP lengths (for schemes in deficit submitting valuations in respect of both Tranches 4 and 7) RP length (years) Tranche 4 Tranche 7 95th percentile Upper quartile Median Lower quartile th percentile Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 29

30 Table 3.3 Distribution of DRC schedules (schemes in deficit only, all tranches) 50 of scheduled DRCs to be paid after (years) Tranche 1 Tranche 2 Tranche 3 Tranche 4 Tranche 5 Tranche 6 Tranche 7 95th percentile Upper quartile Median Lower quartile th percentile Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 30

31 Table 3.4 Average RP length by scheme characteristics (schemes in deficit only, all tranches) Tranche (years) Tranche (years) All schemes Size by number of members Fewer than 100 members to 499 members to 999 members ,000 to 4,999 members ,000 members or more Size by TPs Less than 5m m to 19m m to 99m D&B Failure Score 15 or less to to or greater Scheme status Open Closed to new members Closed to future accrual Covenant (schemes in deficit only) Covenant group 4 (Weak) m to m or greater Maturity (ratio of pensioner TPs to total TPs) Covenant group 3 (Tending to weak) Covenant group 2 (Tending to strong) Less than to Covenant group 1 (Strong) continued to or greater Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 31

32 Table 3.4 Average RP length by scheme characteristics (schemes in deficit only, all tranches) Tranche (years) Return-seeking assets Less than to less than to less than to less than or greater Presence of contingent assets No contingent asset At least one contingent asset Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 32

33 Table 3.5 Average annual contributions as a percentage of liabilities estimated on a reference 6 basis split by scheme characteristics (schemes in deficit Tranches 4 and 7) Tranche (percentage) Tranche (percentage) Tranche (percentage) All schemes D&B Failure Score RP length (schemes in deficit only) Size by number of members 15 or less Fewer than 5 years Fewer than 100 members to to fewer than 7.5 years to 499 members to to fewer than 10 years to 999 members or greater years or greater ,000 to 4,999 members Scheme status Return-seeking assets 5,000 members or more Open Less than Size by TPs Closed to new members to less than Less than 5m Closed to future accrual to less than m to 19m Covenant (schemes in deficit only) 60 to less than m to 99m Covenant group 4 (Weak) or greater m to m or greater Maturity (ratio of pensioner TPs to total TPs) Covenant group 3 (Tending to weak) Covenant group 2 (Tending to strong) Presence of contingent assets No contingent asset At least one contingent asset Less than Covenant group 1 (Strong) to to or greater Liabilities are estimated using gilts with an excess return of 50 basis points. Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 33

34 Discount rates (schemes in deficit only) Table 4.1 Average nominal discount rate and outperformance by tranche 7 (schemes in deficit only, all tranches) Mean () Tranche 1 Tranche 2 Tranche 3 Tranche 4 Tranche 5 Tranche 6 Tranche 7 Pre- and post-retirement rates (a) Pre-retirement rate (b) Post-retirement rate (b) SEDR (c) SEDR (all schemes) (d) SEDR outperformance over conventional 20 year UK gilts (e) SEDR outperformance over greater than 15 year AA UK corporate bonds (f) (a) Single rate approach (b) Different rates approach (c) Composite of pre- and post-retirement rates for the different rate approach (d) Combined single and different rates approach 7 Tranche 1: 22 September 2005 to 21 September 2006 Tranche 2: 22 September 2006 to 21 September 2007 Tranche 3: 22 September 2007 to 21 September 2008 Tranche 4: 22 September 2008 to 21 September 2009 Tranche 5: 22 September 2009 to 21 September 2010 Tranche 6: 22 September 2010 to 21 September 2011 Tranche 7: 22 September 2011 to 21 September 2012 Source for (e): Thomson Reuters, FTSE Group Source for (f): Thomson Reuters, Markit iboxx Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 34

35 Table 4.2 Average real discount rate and outperformance by tranche (schemes in deficit only, all tranches) Mean () Tranche 1 Tranche 2 Tranche 3 Tranche 4 Tranche 5 Tranche 6 Tranche 7 Pre- and post-retirement rates (a) Pre-retirement rate (b) Post-retirement rate (b) SEDR (c) SEDR (all schemes) (d) Outperformance against greater than 5 year index linked gilts (e) Outperformance against greater than 15 year index linked gilts (e) (a) Single rate approach (b) Different rates approach (c) Composite of pre- and post-retirement rates for the different rate approach (d) Combined single and different rates approach Source for (e): Thomson Reuters, FTSE Group Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 35

36 Table 4.3 Average nominal SEDR by scheme characteristics (schemes in deficit only, all tranches) Tranche (mean ) Tranche (mean ) Size by number of members Fewer than 100 members to 499 members to 999 members ,000 to 4,999 members ,000 members or more Size by TPs Less than 5m m to 19m m to 99m m to D&B Failure Score 15 or less to to or greater Scheme status Open Closed to new members Closed to future accrual Covenant (schemes in deficit only) Covenant group 4 (Weak) m or greater Maturity (ratio of pensioner TPs to total TPs) Less than Covenant group 3 (Tending to weak) Covenant group 2 (Tending to strong) to to Covenant group 1 (Strong) continued or greater Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes 36