By Shalin Bhagwan, Chief Actuary, Pension Protection Fund
At the time, it felt like an inevitable evolution and a natural response to economic pressure, a move away from employees working for a single employer for most of their working life and company directors desiring certainty over pension costs. Yet, looking back three decades later, in my role of Chief Actuary of the Pension Protection Fund (PPF), I find myself watching a remarkably familiar story unfold.
The PPF exists to provide a vital safety net within the DB universe. That role, balancing long-term financial resilience with member protection, gives us a unique opportunity to observe how the industry is evolving.
What the data is telling us
While the DB landscape in the UK is clearly evolving, our analysis in the Purple Book (the PPF’s annual assessment of the health and risks of the DB system), shows a period of improved funding and a gradual progression towards scheme maturity, with more sponsors considering buy-out and consolidation as part of their long-term planning. At the same time, the industry’s focus has broadened, with increasing attention on defined contribution arrangements and, more recently, collective defined contribution (CDC). Taken together, these developments echo patterns I observed earlier in my career, and the parallels with South Africa are difficult to ignore.
History may not repeat itself, but it certainly rhymes.
That perspective - having witnessed one full DB transition already - inevitably shapes how I think about today’s landscape. If I had a DeLorean and could go back to the 90s, I would ask whether we moved too quickly to dismantle risk-sharing structures that had served members reasonably well for decades.
The rapid run-off of DB schemes and wholesale transfer of liabilities to insurers achieved certainty - but at a cost. Investment and longevity risk moved almost entirely onto individuals, often with limited support or financial resilience. Over time, that contributed to uneven retirement outcomes and, in many cases, inadequate incomes later in life.
This matters today because the UK is at a similar crossroads. If the system as a whole loses too much risk-sharing capacity too quickly, we risk narrowing the range of options available to future generations.
That is where the PPF, with our unique perspective, can help support and inform future thinking.
Supporting long-term decision-making
As the backstop for DB pension schemes, we take long-term decisions in members’ interests, rather than being forced into short-term risk avoidance.
The latest Purple Book data provides grounds for cautious optimism. Funding levels across the DB universe have improved considerably which, when coupled with the PPF’s financial position, has helped us move to a new phase in our funding journey. We’re now moving towards financial self-sufficiency and have reduced the PPF levy to zero. That decision reflects our financial resilience and confidence in our ability to meet current and future obligations.
What does the future hold for DB pension schemes?
But stability should not breed complacency. If anything, it sharpens the question of what next for DB and the continuing role of the PPF. Over the past 20 years, we have taken on more than 1,000 schemes, and look after over 289,000 PPF members. We ultimately protect the remaining 8.8 million DB members, and will continue to be the backstop for the DB universe for decades to come. So, as we look ahead to the next 20, what does the future potentially hold in store?
Operationally, our immediate priorities are clear. We are focused on delivering existing commitments effectively, including the implementation of the various PP and FAS specific provisions in the Pension Schemes Bill.
At the same time, as the weight of pension provision shifts towards DC and CDC and DB schemes give increasing consideration to running on, far from diminishing the PPF’s role as a safety, these developments accentuate the need to think more holistically about the PPF’s role as a pensions lifeboat. And so more responsibility inevitably falls on the PPF to deepen its own understanding of how systemic pensions risk might evolve in the decades ahead. That means focusing again on our modelling and risk analysis capabilities, and strengthening further our collaboration across actuarial, investment and policy teams.
Asset-liability management sits at the heart of this work. The actuarial and investment functions at the PPF operate in close partnership, ensuring that our investment strategy reflects not only current liabilities but also the uncertainty around future claims.
Stability in the DB universe allows us to think more strategically about how the pensions landscape is evolving and the emergence of new models for managing pension risk. In this environment, our role is to ensure that we make the best possible use of our resources in support of member protection.
Ultimately, pensions are about people, not just balance sheets. Having seen one DB system wind down before, I am convinced that the choices we make now will echo for decades.
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