Nearly two out of five (37 per cent) pension schemes are now in surplus against their funding target, according to Mercer’s 2018 valuation survey.
This is an increase on the 2015 survey, where just 27 per cent of schemes showed a surplus.
Mercer says that this increase in funding levels was encouraging, but pointed out signficant number of these DB pension schemes (38 per cent) had still not agreed a long-term funding targets.
Mercer director Simon Turner says: “Having a surplus against a funding target is rarely the end of the journey. Trustees and sponsors need to set and agree longer-term objectives to improve the chances of paying members’ pensions as they fall due.”
This survey also demonstrates how integrated risk management has become a key part of trustees’ decision-making processes.
Three-quarters of pension schemes are reviewing investment strategy alongside the valuation process; two in three schemes seek external covenant analysis and twice as many receive daily updates of their funding position, compared to 2015.
Turner adds: “It is clear trustees are looking at funding, investments and employer covenant together when undertaking actuarial valuations, and improvements have been made in risk management and regular monitoring.
“However, less than 20 per cent of pension schemes have formally documented their approach to risk management which begs the question – are trustees really using the IRM framework to make practical decisions? It is clear that there is considerable room for development in this area to aid robust and timely decision making.”
The survey also found that many pension schemes have changed their assumptions for life expectancy. Most say this was the result of more up-to-date statistics becoming available.
Over half of schemes had carried out scheme specific analysis on life expectancy in the 2018 valuation survey, compared to less than a third in 2015.
Finally, the survey highlighted the continued trend for schemes closing to accrual of future pension benefits. Two-thirds of schemes covered by the 2018 survey were closed to accrual. Three years ago, nearly half of schemes were still open to new benefit accrual.
