Aggregate funding position of schemes in the PPF 7800 index
This chapter looks at the aggregate funding position of defined benefit occupational pension schemes, using monthly data from the Pension Protection Fund (PPF) 7800 index. It also analyses the income, expenditure and asset holdings of pension funds, using annual data (up to 2007) collected by ONS's MQ5 series: Investment by Insurance Companies, Pension Funds and Trusts.
The aggregate funding position of schemes in the PPF 7800 index is highly variable. An overall surplus of £130.4 billion was recorded in June 2007, but in 2008 falling equity markets and bond yields led to a worsening of the funding position. In December 2008, there was a overall deficit of £194.5 billion.
Data from MQ5 on self-administered pension funds – mostly associated with defined benefit schemes – show that:
• Total income peaked at £71.8 billion in 2006 before falling to £62.8 billion in 2007. Total expenditure peaked at £52.1 billion in 2006 and fell to £45.2 billion in 2007.
• Total contributions fell in 2007, possibly because of pension scheme surpluses which allowed employers to reduce special contributions.
• There was a 4.7 per cent drop in expenditure on pensions by the funds in 2007, the first significant decrease in pension payments since the series began in 1984.
• In 2007, 61 per cent of funds' investment was in corporate securities, 58 per cent of which was in the UK and 42 per cent overseas.
• The composition of investment in corporate securities changed between 1986 and 2007, with a smaller proportion of the total invested in shares and a larger proportion in mutual funds and bonds.
Note: Self-administered pension funds are managed by scheme trustees or investment managers. They invest the schemes' income, including contributions from employers and employees. The information presented here does not cover insurance-managed schemes.
Defined benefit (DB) schemes are those in which the rules specify the rate of benefits to be paid. The most common DB schemes are salary-related.
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