The average funding position and proportion of schemes in surplus are now at their highest levels since the start of the current funding regime in 2005, latest Aon research reveals.
The consultancy's research found both the average technical provisions funding level (93%) and the proportion of schemes in surplus (46%) were both higher for tranche 16 schemes - those with effective valuation dates between 22 September 2020 and 21 September 2021 - than for any previous year since the start of the current funding regime in 2005.
Despite this, for schemes in deficit, Aon found the average recovery period of 6.1 years, was only 1.2 years shorter than three years ago, when many schemes' previous valuations were undertaken.
Aon added the change over the typical valuation cycle - from tranche 13 to tranche 16 - indicated an improvement in the average funding level and an increase in the percentage of schemes for which the technical provisions were fully funded.
But it said that both assets and liabilities were likely to have increased significantly over this period - noting that a typical scheme's deficit in monetary terms would not have reduced to the extent that might be suggested by the change in the average funding levels.
It added, however, that since the dates of these tranche 16 valuations, funding had generally improved further.
Other findings
Aon's analysis of completed valuations also found that a long-term funding target was used in addition to a technical provisions target by 70% of schemes, and 59% of those schemes had a journey plan to achieve the target by the time the scheme is significantly mature.
It additionally found over three-quarters (76%) of schemes took an integrated approach to risk management that included consideration of downside scenarios and contingency planning.
The consultancy found 86% of tranche 16 schemes hedged at least 70% of their interest rate risk and 88% hedged at least 70% of their inflation risk, compared to 58% and 61% three years ago.
It said average discount rates in excess of gilt yields were similar to those used last year but lower than those of three years ago. The average difference between retail prices index (RPI) and consumer prices index assumptions was 0.84% per year for the period before 2030 and 0.09% per year post-2030, reflecting the announced change to the calculation of RPI from 2030.
