Purple book pension

The latest in defined benefit pension scheme statistics

The Purple Book is a yearly publication of UK defined benefit scheme data. It offers a great insight into the health and strategy of pension schemes in the UK. As the insurer responsible for ensuring members income, the Pension Protection Fund (PPF) keeps a keen eye on data from eligible schemes.

The Purple Book 2020 focuses on the changes in the past twelve months. The PPF insures thousands of smaller schemes who struggle to meet their pension liabilities. Additionally, the closure of large schemes such as Bupa and the demise of Arcadia Group have hit the headlines over the past 12 months. This has led to further concerns over the general long-term health of defined benefit schemes in the UK.

The Pension Protection Fund are a private insurance firm who underwrite UK defined benefit schemes. The PPF charge an insurance levy to member schemes. They can take over schemes in financial trouble, or where a firm become unable to maintain its pension responsibilities.

Headlines of the 2020 Purple Book

We’ve highlighted some important statistics from the Purple Book and explained what this could mean to you, and the future health of your pension.

The following key statistics represent changes from March 2019 to March 2020.

  • Total number of pension schemes eligible under the Pension Protection Fund:

2020: 5,327 schemes, with a total of 9.9 million members

2019: 5,436 schemes, with a total of 10.1 million members

The declining scheme numbers is due to a combination of mergers, schemes winding up and those entering the PPF. In 2020, the PPF reported 80 pension schemes under assessment, holding a total value of £13.6 billion. This was up from 73 in 2019 where total value was £11.2 billion.

  • Financial health of eligible defined benefit pension schemes

Total deficit across all schemes:

2020: £229 billion deficit

2019: £160 billion deficit

All UK defined benefit schemes are regularly independently assessed. Auditors consider the total ‘liability’ to be the estimated amount schemes must pay as a pension income to members for their lifetimes.

The ‘deficit’ of a pension scheme is the gap between the total assets (value) of a scheme against the total liability. A scheme’s liability includes its running costs and the total amount it will have to pay out in pension income to all members. As people live longer, schemes must expect to pay out lifetime pensions for longer, meaning an increasing liability.

While many schemes would be deemed ‘healthy’, there has been a significant rise in the total scheme deficit. This has meant that the overall scheme funding now sits at 94.9%, down from 99.2% in 2019.

  • Scheme investment strategies

Defined benefit schemes hold a fund of money to be paid out to members for their lifetimes. This fund is invested, but must be carefully managed. The pension fund is run by pension trustees and administrators to an agreed investment strategy. The strategy must carefully balance security with the opportunity for growth and the need to keep pace with inflation.

In 2020, the Purple Book reports pension scheme investments to hold an average of just 20% equities and 69% bonds (with the rest in other areas). In 2019, the weight of equities was 24%, and as much as 61% as far back as 2006. While bonds offer longer term security and consistent returns, they don’t offer the same growing-power of equities. This change in asset allocation reflects trustees’ concern over the effect of a market downturn and impact of volatility.

Trustees have clearly de-risked their portfolios in the last 12-months. However, the reduction of risk in an investment portfolio does present the risk of longevity. With a cautious investment strategy, schemes may further struggle to maintain their financial health and pay out member benefits. Equities carry the risk of volatility – something the Covid-crash has demonstrated. But, as markets recover, investment management teams may risk missing out on the market’s recovery.

  • Success of PPF claims

A common misconception about the PPF is its status. The PPF is a private body. It is not government-backed and is effectively a private insurer. While the government will ultimately have concern over the lasting pension income of DB members, the PPF takes responsibility when schemes fail.

Pension schemes who are members of the PPF are eligible to apply for support in the event of insolvency or wind-up. The PPF charges schemes an annual fee for membership and must maintain its own finances.

In 2020, the Purple Book showed the probability of PPF success to be 83%, down from 89% in 2019.  This is the success of scheme claims, meaning less schemes have been successful in their claim for protection from the PPF. Many schemes go through a long application and re-application process as a sponsoring employer financially struggles, winds up or closes its doors. The PPF have stated that the decline in successful claims is linked to the Covid-19 pandemic and its effect on their long-term outlook.

Research your defined benefit pension scheme

You must keep in touch with your pension provider.

Those living outside of the UK have a tendency of failing to update their pension providers with contact details. In the current environment it has never been more important to keep stock of your pension. Pension providers have now mostly turned to electronic communication, meaning updating your email address with the scheme should ensure you can gain updates without the worry of international post.

Use our research toolkit to contact your pension scheme and ask all the right questions. Our template letters contain a comprehensive list of information you need to fully understand your pension plan, its health, status and how much you will be paid when you retire.


The Purple Book 2020

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