The Pension Protection Fund’s annual Purple Book is almost universally regarded as the authoritative “state of the nation” guide to the UK’s private sector defined benefit schemes — their assets, liabilities, sizes, number and asset allocations. And given that this class of fund commands close to one and a half trillion pounds of assets, their actions are of wide interest.

The headline from last year’s almanac was that these DB schemes — in aggregate — could afford to ‘buy-out’. That is to say they could afford to hand the keys of their pension funds to insurers, and walk away from the liabilities. Louis even made one of my all-time favourite Alphaville header images in honour of this event.

The headline this year, as covered by MainFT, is that last year’s headline was nonsense. The new Purple Book contains, along with fresh 2024 data, some absolute monster revisions to the 2023 data that we’d thought was locked in. Most eye-catchingly, the £150bn buy-out surplus has been revised away to become a £130bn buy-out deficit.

Admittedly, a ‘buy-out’ pension liability valuation is the most brutal of liability valuation measures. This brutality emanates from it using the lowest discount rate of any liability valuation measure and widest possible set of pension benefits. (Discount rates and liability valuations are inversely linked, just like bond yields and prices.)

While less eye-catching, what the PPF really cares about are ‘s179 liability’ valuations. Broadly speaking, an s179 liability is what the PPF is on the hook for if a scheme’s sponsor goes bust and the scheme lacks the assets to pay benefits. Using this measure, schemes are still sitting on a big surplus. Nonetheless, the Purple Book restates this measure of 2023 surpluses down by a cool £152bn — still a colossal number.

To understand what’s going on, we need to step back.

The PPF pulls together the Purple Book data using annual scheme returns, which defined benefit pension schemes are required by law to submit to The Pensions Regulator.

If you think that this return might contain a valuation of assets and liabilities, you’d be wrong. Instead, the annual return contains only a copy of the scheme’s latest s179 actuarial valuation. But s179 valuations are calculated only once every three years, and schemes then have 15 months to submit it following the valuation date. So the PPF’s data can be very very old. In fact, only 4 per cent of schemes submitted an annual return last year with an s179 valuation that related to the previous year.

Lacking current data, the PPF makes a guess as to what numbers schemes might report if they had all submitted an s179 valuation dated March of the current year — rather than whatever it was they actually reported. With so much guesswork going on, maybe the revisions are less surprising?

Let’s go through the figures to see how the PPF’s estimate of 2023’s s179 surplus (aka net funding) dropped by £152 billion:

First up are cash flows. Pension schemes have paid out more in pensions than previously assumed. It turns out that the PPF didn’t bother to model the fact that pensions pay, er, pensions.

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