The UK’s pension protection safety net has dramatically revised its funding level estimates for defined benefit pension schemes, slashing £283 billion from previous calculations whilst maintaining the schemes retain a “strong” overall position.
In a significant announcement Thursday, the Pension Protection Fund (PPF) substantially reduced its valuation of £1.2 trillion in defined benefit pension assets. The adjustment altered the 2023 funding ratio on a buyout basis from 112 per cent to 90 per cent, representing the balance between assets and the amount required for insurers to assume pension payment obligations.
This substantial recalculation has transformed what was previously reported as a £150 billion surplus into a £133 billion deficit for 2023 on a buyout basis. The implications are considerable, as schemes previously thought to be positioned for securing member benefits through insurance buyouts now face a different reality.
Independent pensions consultant John Ralfe described the situation as “hugely embarrassing,” noting the unprecedented scale of the asset overstatement. The PPF attributed the revision to updated actuarial assumptions, more detailed asset allocation data, and the inclusion of cash flow considerations—factors previously omitted from their methodology.
Despite the concerning revision, 2024 has shown improvement with the buyout ratio reaching 94 per cent, though still representing a £69.5 billion deficit. The timing is particularly notable as companies have been actively seeking to transfer their defined benefit pension obligations to insurers, with sales reaching a record £60 billion last year.
The aggregate funding ratio remains robust at 120 per cent, indicating schemes are well-funded overall. The PPF’s protection level maintains a substantial surplus of £219 billion, suggesting minimal impact on PPF levy requirements or immediate concerns for pension security.
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