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 first published The Purple Book, also known as The Pensions Universe Risk Profile, in 2006. This year marks its 16th edition.
The book is a complete picture of the schemes we protect and enables us to understand the risks we face. By tracking trends, we can develop an in-depth understanding of the changing defined benefit landscape, and make informed decisions for the future.
What it comes down to is managing the risk we face appropriately.
Recognising the key risks
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 biggest risk we face is the number and size of new claims that might come to us and making sure we‘ve sufficient funds to cover them. Looking at how trustees are managing the risks schemes face and how these might impact us is of great value to us.
The latest dataset tells us the defined benefit universe continues to decline. There are now 5,220 eligible schemes, down from 5,327 last year, and 9.7m members, down from 9.9m.
The Purple Book also tells us the biggest risk to us - the deficit of schemes in deficit - is at £129bn. Although this is an extreme scenario, it reveals the amount of deficit we would need to cover if all scheme employers become insolvent. We use this information to help us monitor and manage our total risk exposure.
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
- Schemes are continuing to take de-risking measures. For example, we’re seeing schemes are investing more in bonds and moving away from equities
- Finally, schemes continue to close to new benefit accrual
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 levy and our funding strategy.
It also allows us to understand the steps that trustees have taken to reduce their deficits and therefore the risk of claims on us.
The relevance of our 7800 Index
Every year, The Pensions Regulator (TPR) receive annual scheme returns information from pension scheme trustees which forms the foundation of the data we use.
This is the same for the data we publish in our PPF 7800 Index, which estimates the latest funding position of defined benefit pension schemes protected by us on a monthly basis.
By providing an in-depth look at the monthly changes in the universe we’re continuously looking at the size of the risk we face. This further enables us to protect our members, both current and future.
How the industry can use The Purple Book?
The information in the book is also useful to pension scheme trustees, chief finance officers and consultants. It provides a benchmark for their own schemes against the universe.
The Purple Book is also a key reference used by the media, pensions influencers and the government in their policy discussions.
We strongly believe in transparency, and by sharing our knowledge and expertise we’re encouraging best practice in risk management to ensure the best possible outcome for scheme members.
Terry Astridge is one of our Actuaries.