UK defined benefit (DB) schemes had an overall deficit of £203.4bn at 31 March 2020, compared to £159.2bn 12 months earlier, according to The Pensions Regulator (TPR).

The regulator’s annual report on the DB pensions landscape noted that the schemes had total assets of £1,717.6bn and liabilities of £1,920.9bn.

Meanwhile, 852 of the 5,334 DB schemes included in the analysis, or 16 per cent, had funding levels of 100 per cent or more, compared to 21 per cent of the schemes TPR had information on in 2019.

Over a quarter (28 per cent) of the schemes assessed had funding levels of below 80 per cent.

Buck principal and senior consulting actuary, Sarah Brown, said: “It is perhaps no surprise that funding positions as of 31 March 2020 look much less favourable than those a year ago – with an overall deficit of more than £200bn, compared to £159bn as of 31 March 2019.

“This was a point when gilt yields were low and markets depressed, as the full effects of the pandemic began to impact the UK. Many schemes have seen their funding rebound since then, but the events of last year highlight how important it is for trustees and sponsors to monitor their funding position and have plans in place for when conditions change.”

Schemes with over 10,000 members had the greatest total deficit, accounting for £122.8bn of the total deficit, while schemes with 5,000 – 9,999 and 1,000 – 4,999 accounted for £22.8bn and £33.9bn respectively.

This is not the first indication of a decline in funding levels as, in December 2020, The Pension Protection Fund stated that DB scheme funding levels had fallen from 99.2 per cent to an average of 94.9 per cent in the 12-month period ended March 2020.

The figures also showed that there were 1,017,211 active members of DB schemes, a decline of 6 per cent from the year before and a figure that represents 10 per cent of all DB scheme memberships in 2020, with the remainder being deferred and pensioner members.

Brown commented: “2020 saw another fall in the proportion of the UK’s DB schemes in which there are benefits still accruing, from 52 per cent as of 31 March 2019 to 50 per cent by 31 March 2020, with only 1 million individuals accruing defined benefits.

“These members make up less than 10 per cent of total private sector DB scheme membership. As a result, many sponsors continue to consider how to manage the cost of new accrual, and schemes are increasingly focused on how to manage those benefits that have already accrued.”

In terms of the overall landscape of the 5,604 DB schemes, 3 per cent were winding up, 10 per cent remained open, 40 per cent were closed to new members and 47 per cent were closed to future accruals.

Five per cent of public listed companies' DB pension schemes were open to new members, the same percentage as registered charities, while 6 per cent of private listed companies' DB schemes remained open.

Conversely, 31 per cent of colleges' or education institutions' DB schemes and 30 per cent of government or public body DB schemes remained open, respectively.

Barnett Waddingham partner, Simon Taylor, commented: “The percentage of private sector schemes closed to future accrual has risen again this year, and by next year it’s likely to make up more than half of all schemes. More scheme sponsors will be looking to control cost and risk following the pandemic, therefore consulting with members to cease accrual.

“This will put them firmly on track for their strategy to reach endgame. Scheme sponsors control the purse strings, so it’s absolutely vital that they work out what the ultimate destination for their scheme is, and how they are going to get there, before agreeing the journey with their trustees.

"Balancing the needs of the wider business and all stakeholders is no easy task, so it needs careful consideration.”

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