Purple Book indicates direction of travel for DB pension schemes

The Pension Protection Fund (PPF) has published its ‘Purple Book’, providing a steer and understanding as to the continued direction of travel for UK defined benefit (DB) pension schemes.

The Purple Book is published annually every December and this year’s edition uses data collected over the year to 31 March. The data includes 8.8m DB scheme members, of which 46% are pensioners, 46% are deferred members and 8% are active members.

Daryl Morris, Consultant at Quantum Advisory, said: “This low percentage of active members, which equates to around 700,000 individuals, reinforces how few employees in the private sector are still building up defined benefit pensions, which are seen as the gold standard for individuals.”

The publication reveals that funding positions for schemes have improved over the year, largely as a result of market movements with higher gilt yields driving down pension liability values. This has led to another record annual fall in scheme liabilities, with section 179 liabilities falling from £1.03trn to £0.95trn and buyout liabilities decreasing from £1.37trn to £1.24trn.

Daryl said: “Approximately 74% of schemes were in surplus at 31 March 2024 on a section 179 basis, and over 37% were in surplus on an estimated full buyout basis.

“With regards to liabilities, the fall in liability values this year moves even more schemes to the point of being able to afford a buyout. This is placing pressure on the insurance market and schemes will need to be well prepared before approaching insurers if they want to access the best pricing.”

Further details in this year’s Purple Book show that asset allocation remains similar to previous years. Schemes continue to invest largely in bonds, with equity as the second highest allocation.

Daryl said: “As DB pension schemes mature, schemes de-risk by moving their investments into lower risk assets. Therefore, it is expected that the percentage invested in bonds will remain high in the future.”

There was also a reduction in the PPF levy, down from £385m to £173m. It is estimated that the 2024/25 levy will be £100m, resulting in most schemes paying less than previous years.

Daryl added: “This lower levy reflects a reduction in the risks the PPF faces, with reserves at their highest-ever level and lower projected future claims than last year.”