Nearly a quarter (23 per cent) of schemes with an effective valuation date for tranche 12 were in surplus on a technical funding basis, according to The Pensions Regulator (TPR).

TPR’s Scheme Funding Analysis 2019 revealed that 1,880 valuations from DB and hybrid tranche 12 pension schemes were submitted in the fourth triennial cycle of scheme funding (between December 2017 and December 2018).

Of the schemes that submitted the valuations, 77.6 per cent had submitted valuations in respect of tranches 9, 6 and 3.

Between tranches 9 and 12 valuation dates, asset growth matched the growth in liabilities “for many schemes, resulting in a relatively unchanged average funding ratio”.

Average annual deficit reduction contributions were also relatively stable, decreasing slightly from 2.2 per cent of liabilities to 2.1 per cent.

TPR found that the average length of time for recovery periods for schemes in deficit was 7.3 years.

The average ratio of assets to technical provisions was 109 per cent for schemes in surplus, while for those in deficit and surplus the average ratio was 88.5 per cent.

Assets reportedly increased due to the combination of improved sponsor contributions and generally positive gains on investments in the three years between valuations.

The report added: “Liabilities have also grown due, in part, to lower investment return assumptions relative to those assumed in the previous valuation - which in turn may have been driven by revised (lower) expectations for long-dated bond yields relative to tranche 9 valuations.

“In general, schemes with hedged positions in respect of interest rate risk will have fared better overall.”

Between the tranche 9 and tranche 12 valuations, yields on corporate and government bonds continued to decline, dipping at the start of the tranche 12 valuation window, with market expectations for future interest rates being revised downward.

The median increase in assets and technical provisions between tranches 9 and 12 was 29 per cent, while the average ratio fell by 0.9 per cent.

The average ratio is generally higher for schemes with stronger covenants, without a contingent asset and with shorter recovery plans, while schemes with an average funding ratio of 90 per cent of higher were more mature, larger and has the most conservative investment strategies.

Tranche 12 schemes had an average nominal single effective discount rate of 2.75 per cent, with 50 per cent falling between 2.26 per cent and 3.18 per cent.

The average single effective discount rate was -0.67 per cent, with 50 per cent of assumptions between -1.11 per cent and -0.29 per cent.

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