Every year we publish comprehensive data and analysis of the UK’s defined benefit pension landscape in The Purple Book. But what does it tell us and how do we use it?
We have published The Purple Book, also known as The Pensions Universe Risk Profile, every year 2006. The latest version marks its 18th edition.
The Purple Book gives a comprehensive picture of the schemes we are here to protect and helps us to understand the risks we face. By tracking trends, we can develop an in-depth understanding of the changing defined benefit pension landscape, and make informed decisions for the future.
Risk of claims on the PPF
It’s important for us to understand and manage risk to make sure we can pay compensation to all our current and future members for as long as they need us.
The Purple Book shows that risk posed by the universe has reduced over time and that claims on us have been decreasing. That said, some schemes remain very underfunded and therefore the risk of further claims on us persists.
Identifying the trends to model the future
Identifying trends is another notable aspect of The Purple Book. This helps us to build a picture of what the future might look like.
The dataset looks at scheme demographics, scheme funding and asset allocation, as well as our own membership profile and the levy we’ve collected.
Trends in recent years include:
- The defined benefit universe is continuing to shrink as schemes wind up or transfer over to us – the latest dataset tells us there are currently 5,063 PPF-eligible schemes, covering 8.9 million members.
- Schemes continue to close to new benefit accrual.
- Broad asset allocation has stabilised, following a period of schemes moving away from equities and investing more in bonds.
- An increasing proportion of liabilities are in respect of current rather than future pensioners, with that proportion reaching over 50 per cent for the first time in The Purple Book 2023.
All this helps us to model the level of claims we might expect to absorb in future years, make informed decisions about our investment strategy, the PPF levy, and our funding strategy.
The starting point of our 7800 Index
Following release of the Purple Book, the PPF 7800 delivers a monthly update of the universe aggregate scheme assets and liabilities. Using the same methodology as The Purple Book, this is a simple update that takes account of changes in market conditions via a small number of price and yield indices. No allowance is made for structural asset changes, membership movements, benefits paid out, or the cost of new benefit accrual.
The main analysis in The Purple Book 2023 is based on the most recent scheme returns submitted to The Pensions Regulator (TPR) by 31 March 2023. The resulting Purple Book dataset includes 5,051 DB schemes, representing 99.8 per cent of PPF-eligible schemes and universe liabilities.
The bulk of the analysis uses funding with pension scheme liability values measured on a section 179 (s179) basis. This is, broadly speaking, what would have to be paid to an insurance company to take on the payment of PPF levels of compensation (rather than full scheme benefits).
The assets and liabilities shown in The Purple Book have been calculated through rolling forward from the latest s179 valuation. Over two-thirds of assets and liabilities at 31 March 2023 have been rolled forward from s179 valuations dated between April 2020 and March 2022.
Scheme returns now allow for more granular asset information, particularly around government and corporate bonds, and overseas equities. We have been able to include lots of this additional data in The Purple Book chapter 7 – asset allocation.
James Emmott is one of our Actuaries.