Purple Book 2017 – Bond allocations still rising (or are they)?

The 2017 Purple Book, the Pension Protection Fund’s stat-fest on DB pensions, has landed. The document, can be accessed here. The main headlines for me are as follows:

• The transition of schemes from “closed to new members” to “closed to future accrual” is continuing – if the trends continue, more schemes will be closed to accrual than closed to new entrants by 2018 or 2019. The number of fully open schemes is relatively stable (but only accounts for 12% of schemes);
• The funding levels of schemes (as measured on a S179 basis and a buyout basis) rose over the year to 31 March 2017, in spite of significant market turbulence which occurred around the EU Referendum Vote in June 2016;
• The average length of recovery periods for valuations submitted to the Regulator dropped slightly, from eight years to seven and a half years;
• The average insolvency rate of companies who sponsor DB schemes is around 0.3% a year – this has been relatively stable over recent years having dropped from around 0.8% in 2013/14). So, if you are a member of a scheme, your employer is (on average) significantly less likely to become insolvent than was the case four or five years ago;
• Asset allocations to equity and property are relatively stable. There is a modest switch from cash and “other investments” to “bonds”.
  • I have a hunch some of this may be a re-classification of assets rather than a sign of strategic shift towards bonds.
  • The relative steadiness of allocations indicates little evidence of asset allocation changes during a year which contained some shocks.
  • It will be interesting to see if there is a greater shift towards bonds in 2017/18 as funding levels have improved and as there may have been some profit-taking from equity stocks. I suspect those hoping to have seen “peak bond” will be disappointed.
• The number of schemes in assessment for PPF entry has continued its steady decline, both in terms of the total number of schemes and as a percentage of the DB universe. 78 schemes were in assessment during 2017/18 (around 1.4% of the total number of schemes); and
• There is a large concentration of liabilities for schemes in assessment (around 80%) amongst schemes whose liabilities exceed £100m.