An estimated 61 per cent of defined benefit (DB) pension schemes with valuation dates between 22 September 2021 and 21 September 2022 (tranche 17) were in surplus on a technical provisions basis on 31 March 2022, according to The Pensions Regulator (TPR).

Nearly a third (31 per cent) moved from a deficit to a surplus and 38 per cent of schemes remained in deficit, while 1 per cent fell from a surplus to a deficit.

The average funding level for schemes with a 31 December 2021 valuation was around 9 per cent higher than three years prior, while those with a 31 March 2022 valuation saw average funding levels increase by 7 per cent over three years.

TPR noted that the experience of individual schemes varied “significantly”, with 5 per cent of December 2021 valuation schemes seeing their funding levels fall by 2 per cent, while 5 per cent saw their funding levels rise by more than 23 per cent.

For those with a March 2022 valuation date, 5 per cent saw funding levels fall by more than 2 per cent, while 5 per cent of schemes’ funding levels rose by more than 20 per cent.

“The most significant factors in driving the variation of experience between schemes are the extent to which schemes hedge interest and inflation rates, and the extent to which schemes are invested in growth asset classes,” TPR noted.

TPR’s Annual Funding Statement Analysis also showed that if all tranche 17 schemes had a 31 March 2022 valuation date and were able to retain their recovery plan end dates, around 68 per cent of those in deficit would be able to retain their deficit recovery contributions (DRCs) at the same level or reduce them.

Almost a third (32 per cent) would need to increase DRCs, with around 1 per cent needing to increase their DRCs to more than three times their current levels.

“A key factor for trustees and employers when agreeing an appropriate recovery plan is the affordability position of the employer, recognising that what is affordable may be affected by the employers’ plans for sustainable growth,” TPR stated.

“The Russian and Ukrainian conflict, Covid-19 and Brexit may have impacted the extent to which individual employers can afford to make DRC payments. For some employers, affordability will have been significantly reduced and will be the limiting factor for DRCs, at least in the short term.”

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