The Pensions Regulator (TPR) and the Pension Protection Fund (PPF) have amended their actuarial models to take account of benefit payments and future accrual, in an effort to create more alignment across their defined benefit (DB) funding models.

The Work and Pensions Committee (WPC) previously recommended that the PPF and TPR should work with the Office of National Statistics (ONS) to reach an understanding of the funding position of DB schemes, after its DB inquiry found a number of discrepancies in the respective datasets.

TPR, the PPF and the Office of National Statistics (ONS) have since shared a joint statement confirming the changes ahead of the publication of the PPF's Purple Book, which used the updated methodology.

Explaining the key differences in the datasets, the joint statement noted that while the ONS uses a sample of funded occupational pension schemes to collect pension assets data, TPR and the PPF have data for the whole universe.

It also pointed out that whilst the ONS uses current data, given the triennial valuation cycle of DB schemes, at any given time a substantial amount of the data used by TPR and PPF will be up to three years’ old.

In addition to this, both TPR and the PPF use their own actuarial modelling to calculate their estimates of current assets and liabilities, and in doing so, adjust both the assets and liabilities to account for changes in financial markets, through standard market indices.

In contrast, the ONS does not currently publish pension entitlement liabilities data and therefore does not publish estimates of scheme funding levels, which are a key intertest for both TPR and the PPF.

In addition to this, the statement noted that TPR does not collect information regarding benefit payments or accrual and requires further estimates or actuarial judgement to make allowances for these factors in their modelling.

According to the statement, recent TPR and PPF asset valuations would be expected to be between £80bn to £120bn higher than ONS estimates, because of the above factors alone.

However, the statement stressed that both TPR and PPF liabilities valuations would also have been £80bn to £120bn too high, such that the overall surplus (or deficit) and funding level would be broadly the same, with or without these adjustments.

Given these key differences, the organisations said that it is currently not appropriate to compare one set of statistics from one organisation with another’s set of statistics in isolation because these are not like for like.

However, the joint statement acknowledged that there is a desire for greater alignment across the publications.

"We appreciate the importance of reaching a shared understanding of the current funding position across the DB pension schemes universe," it stated.

To help achieve this, both TPR and the PPF have amended their actuarial models to take account of benefit payments and future accrual.

The statement confirmed that TPR has already made this change, which was included in its publication of analysis of the DB funding code and Fast Track, while the PPF included this change in its latest Purple Book, as well as in future PPF 7800 index releases.

As TPR does not collect benefit payment or accrual data, TPR and PPF used the data from the ONS when making these adjustments.

However, even with these changes, the statement warned that some margin of error should always be expected between the three estimates because of the different modelling approaches taken by each organisation.

"As such, as set out above, it is important not to compare one set of statistics from one organisation with another’s in isolation to avoid incorrect estimates of funding levels or deficits and surpluses," the organisations stated.

"However, the changes made to TPR and PPF methodologies provide greater alignment between TPR, PPF and ONS estimates of the assets held by DB schemes.

"Our analysis suggests that once these changes have been incorporated into TPR and PPF models, ONS, TPR and PPF estimates are close at the dates analysed. We expect the magnitude and direction of the differences in estimates will fluctuate over time."

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