By Mark Tinsley FIA, Principal and Senior Consulting Actuary and Debra Logan FIA, Partner at Barnett Waddingham
The analysis suggests that schemes will show improved funding levels from those reported three years ago and that current recovery plans will be more than sufficient to address any remaining deficits. One striking headline is that TPR expects 61% of these schemes to be in surplus at 31 March 2022. And of those still in deficit, 68% should be able to maintain or even reduce deficit recovery contributions.
Key results
Even with the position of individual schemes varying greatly, in general funding has improved. A combination of significant investment returns over the last 3 years and deficit reduction contributions paid has mostly offset the increasing value being placed on liabilities due to falls in nominal yields and increasing inflation expectations.
TPR’s analysis does not allow for the effects of Brexit, the COVID-19 pandemic or the Russian and Ukrainian conflict, which could have impacted covenant strength and may lead to changes in the assumption being used to calculate the liabilities. However, schemes undertaking valuations at the moment are very likely to find themselves in a better position than they expected to.
With recent competitive pricing in the bulk annuity market, many schemes may be much closer to buy-out than expected. For example, on one scheme we saw a c.10% reduction in premium from a single insurer in just an eight-week period from the end of February due to market movements, which on a net basis (i.e. after factoring in the performance of the scheme’s assets) was very positive for them. In some instances, the ability to buy out may come as a surprise: a buy-out aspiration that was 5+ years out has suddenly become a shorter-term reality and, perhaps unsurprisingly, the level of “transaction readiness” is behind where it needs to be.
TPR analysis supporting the 2022 Funding Statement.
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