The statistics show that overall, 47% of schemes reported a surplus on the Technical Provision (TP) funding basis in tranche 17 – schemes with effective valuation dates from 22 September 2021 to and inclusive of 21 September 2022 – a significant increase on the 32% in surplus in their previous valuation cycle (tranche 14).

The average funding level had increased by 5% (97% in tranche 17 (median: 99%), compared to 92% in tranche 14 (median: 93%)) and recovery plan lengths had reduced with only around 100 schemes of the 1,640 covered needing to extend their recovery plan length. That said, around 400 schemes still saw an extension to their recovery plan end date as they were unable to keep up with previous plans.

The average recovery plan length for schemes in deficit was 4.7 years (median: 3.9 years), with a median end date falling in 2026. For comparison, the average recovery plan length in tranche 14 was 6.2 years (median: 5.2 years).

David Hamilton, Chief Actuary at Broadstone: “As we often see with this data analysis, the time lag since the valuation dates being reported on means this offers limited insight into the state of the DB market. This is especially true on this occasion, as the figures all pre-date the notorious mini-budget two years ago.

“More interestingly though, this is the same tranche of schemes that are about to embark onto the first valuations under the new funding regime. Given the material funding improvements that many schemes saw over the past three years following the rise in gilt yields, a very large number of cases should be in strong financial health. This lays a solid foundation for the ‘next step’ (or in many cases endgame) discussions that are now required.

“After two valuation cycles showing consistent improvements across the board for this group of schemes, it will be interesting to see to what extent the raising of the bar and revised focus within the new regime affects the figures reported next time round. We will also see if recovery plan end dates are impacted by the new fast-track tests, which will inevitably be used by some as an accepted starting point, notwithstanding TPR’s emphasis on affordability.

“Fundamentally though, we expect the new regime may take a few years to settle in and it may be hard to read too much into initial figures. In the meantime, the discussions around longer-term strategy combined with generally strong funding levels means that the intense activity in the pension risk transfer market is likely to continue.”

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