FTSE 350 DB pension scheme report 2022

Accounting positions – Improved accounting positions

• 94% of companies have improved their accounting position - An improvement in funding positions was seen widely across the FTSE 350 in 2021, and the percentage of companies reporting a surplus on an accounting basis increased from 38% to 62%.
• From £5bn deficit at end of 2020 to £32bn surplus at end of 2021 - The end of 2021 saw the highest accounting surplus in the last decade. This surplus continued to grow in the first half of 2022, almost doubling in the first five months of 2022.

Assumptions – Increases in discount rates and inflation, small reduction in life expectancy

• +51bps increase in discount rates - Discount rate assumptions have fallen sharply over the last three years, In 2021 we saw a reversal of this trend and average discount rate assumptions rose from 1.37% p.a. to 1.88% p.a.
• +45bps move in RPI - The end of 2021 saw a sharp upward movement in short- and medium-term inflation expectations and this was reflected in accounting assumptions
• Life expectancy assumptions at lowest in a decade - Life expectancies disclosed for scheme members peaked in 2014 and have trended steadily downwards since that time, reaching a decade low. However, there does not seem to be any material pandemic effect yet.

Key trends – DB closure and de-risking continues, dividends return

• 35% of companies reported DB plans open to future accrual - 2021 saw DB closure activity continue, but we may be now be reaching a point where closure slows, with many employers not seeing the current environment as a time to make changes.
• £43bn of de-risking transactions in 2021 - After consecutive record years for the bulk annuity and longevity hedging market, levels of activity in 2021 dipped slightly but still remained the third highest on record.
• 81% of companies paid more in dividends than deficit contributions - With many pandemic-driven dividend cuts reversed, but little change in deficit reduction contributions (DRCs) in 2021, the number of companies paying more in dividends than DRCs increased drastically over the year (from 57% in 2020).