There has been no long-term negative impact on the nation’s defined benefit (DB) pensions schemes from the 2022 liability-driven investment (LDI) crisis, research from PwC has suggested, although data management could be heading for a "perfect storm".

The latest Pensions Funding Survey showed that DB funding levels have stabilised after a period of uncertainty since September 2022, with the majority (71 per cent) recording no change in their funding level.

Meanwhile, more than a quarter (26 per cent) of schemes recoridng an increase in their funding level, meaning that just 3 per cent of schemes saw a marked decline in funding levels.

Furthermore, the research found that, in this period, around half (48 per cent) of schemes saw the size of their asset base remain broadly the same, with a further 40 per cent seeing levels change by no more than 10 per cent.

This stability stood in "stark contrast" to 2022/23, when large increases in bond yields and significant declines in asset values led to 93 per cent of surveyed schemes experiencing a fall in asset values.

However, PwC clarified that liabilities fell at an even faster rate during this period, meaning underlying funding levels in general did improve.

“Schemes maturing, a greater focus on risk management and increasing regulation has resulted in the majority of UK pension schemes adopting relatively conservative investment strategies that, day-to-day, immunise them against market volatility," PwC UK head of pensions, Gareth Henty, said.

"However, while stability clearly has its benefits, it also means that many pension schemes are not actively investing for growth to provide potentially better outcomes for their members.”

And there are broader concerns, particularly around data, as the research found that 25 per cent of respondents highlighted data preparation and third party administrator capacity as their number one concern.

PwC explained that while the pensions industry has historically worked on a ‘just in time’ basis, where data would be checked just before a member retired, it is now is facing issues with schemes having their data ready for buyout or risk transfer, as well as getting data and systems ready for the introduction of pensions dashboards and completing guarnanteed minimum pension (GMP) equalisation exercises.

“We’re seeing clear signs of a ‘perfect storm’ happening in the third party administration market and so it’s only right that The Pensions Regulator (TPR) is increasing its level of engagement with administrators," Henty warned.

"Having accurate and timely administration is the bedrock for any strategy that trustees and employers want to pursue.

“In addition, as trustees and sponsors will for the first time have to document their long-term objective in a Statement of Strategy, and as part of this due consideration should also be given to a scheme’s data strategy and the resource and capability needed to execute this over the period until the long-term funding objective is reached.”

Some trustees have already begun to think about this work, as PwC found that more than half (58 per cent) of repsondents expect their scheme to use TPR's Fast Track Statement of Strategy template.

However, PwC partner in empoloyer covenant and restructuring, Katie Lightstone, noted that although some schemes and sponsors will want to target Fast Track, many are focusing primarily on how best to achieve their long term strategy as funding levels have improved, before then considering how this fits with the new funding regime.

“As the first cohort of schemes get stuck into a valuation under the new process, it’s clear a highly integrated covenant, actuarial and investment approach is needed," she continued.

"Actuarial advisers will need covenant inputs at an early stage, and covenant advisers will equally need to understand scheme maturity and low dependency funding to do their work.

“Corporates may wish to set out their view of key covenant metrics such as maximum affordable cash and covenant reliability periods as a starting position for trustees given the greater impact these metrics can have to journey plans (and hence cash contributions) in some situations.”

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