Nearly two fifths (38.7 per cent) of defined benefit (DB) and hybrid schemes with an effective valuation date for tranche 16 reported a surplus on the technical provisions (TP) funding basis, data from The Pensions Regulator (TPR) has revealed.

As reported by our sister title, Pensions Age, the regulator’s latest update was based on tranche 16 schemes with effective valuation dates falling from 22 September 2020 to 21 September 2021 inclusive.

According to the update, TPR received over 1,710 valuations with an effective valuation date covered by tranche 16 by 26 June 2023, with 70.6 per cent of these having previously submitted valuations in tranches 13, 10, seven, four and one.

Overall, tranche 16 schemes saw improved asset positions compared to tranche 13 schemes in the previous cycle, which TPR attributed to sponsor contributions and positive (overall) gains on investments in the three years to valuation.

In particular, the average ratio of assets to TPs for schemes in deficit and surplus was 93.7 per cent.

The average ratio of assets to TPs for schemes in surplus, meanwhile, was 109.5 per cent, whilst for schemes in deficit it was 84.4 per cent.

Improvements were also seen in the average recovery plan length, as tranche 16 schemes in deficit recorded an average recovery plan length of 5.7 years.

In total, over half of schemes (61 per cent) had brought forward their recovery plan end dates or have left them broadly unchanged, while 21.7 per cent of schemes have extended their recovery plan end date by up to three years, with 17.3 per cent extending their RP end date by more than three years.

However, TPR noted that given the around three-year inter-valuation period itself, a reduction in recovery plan length of less than three years between tranches still represents an extension to the date at which the scheme is anticipated to be fully funded.

These figures could be understating recent funding improvements, however, as LCP head of pensions research, David Everett, argued that TPR's analysis isn’t reflective of the current position of many DB pension schemes.

He explained: “This year’s analysis of actual scheme funding submissions shows that there has been relatively little improvement, compared with three years prior, in schemes’ reported funding positions, with schemes remaining slightly in deficit on an aggregate basis.

“However, since these valuations were undertaken, with typical valuation dates of 31 December 2020 and 31 March 2021, for many schemes there has been a significant improvement in their funding positions which won’t filter through to the regulator’s statistics for another two years. As such, these latest statistics shouldn’t be taken as a reflection of the current picture.”

Given these improved funding levels, Broadstone head of trustee services, Chris Rice, suggested that trustee and employers have shifted their focus away from deficit contributions and towards the end game, citing the “fervent activity” in the bulk annuity market as reflection of this.

“As more and more schemes become fully funded buyout will be the next target,” he continued. “Unless market conditions change significantly, demand for pension insurance will continue to increase.

“The expected market congestion means schemes need to make themselves as attractive as possible when they approach the insurance market if they want to receive as many competitive quotes as they’d like. Schemes wanting to buyout will need to be well prepared and able to work flexibly with their brokers and insurers to achieve their de-risking goals.”

Indeed, analysis from LCP has suggested that that 2023 is on track for a record-breaking year, with at least £20.2bn of buy-ins and buyouts completed over the first half the year, a new high.

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