Why you need to read the Purple Book
As the PPF and Professional Pensions get ready to launch the 2019 edition of the Purple Book, Lisa McCrory explains how trustees and the wider industry can use the data.
When we talk about the risks in the defined benefit (DB) pension schemes universe, The Pensions Universe Risk Profile - more commonly referred to as the Purple Book - gives a complete picture. It tells the story of how the DB landscape has changed over time, how trustees are managing the risks they currently face, and how these changes have affected the Pension Protection Fund (PPF).
The Purple Book provides the most comprehensive overview of the entire DB universe, which in the last report was a total of 5,450 schemes and 10.1 million members. The information in the book covers the membership profile, funding and investment strategy of these schemes, as well as the PPF's own membership profile and the levy it has collected.
Although the book is compiled and published by the PPF, it pulls together information from a number of different sources. The information relating to the universe of DB pension schemes, for example, uses some of the information gathered by The Pensions Regulator (TPR) as part of annual return it receives from pension scheme trustees.
The Purple Book also gives us a breakdown by subset so comparisons can be made based on a range of characteristics, including size, funding position, and maturity. We find the most useful statistics are in relation to investment strategy and scheme status trends, such as the number of active members. It also gives us an understanding of the recovery plans that employers have in place to reduce their deficits as well as current levels of funding.
First and foremost, we use the Purple Book as an important part of our risk management framework. The data helps us gain an in-depth understanding of how the universe of eligible schemes that we protect is changing. For example, in the first five years of the Purple Book, there was a rapid decline in the proportion of schemes that still allowed new members to join, falling from 66% of schemes in 2006 to 31% in 2011. In contrast, over the last five years this proportion has remained relatively unchanged at around 20%.
Understanding these trends helps us paint a realistic picture of how this landscape might look like in the future. This enables us to model the level of claims the PPF may need to absorb in years to come, which, when combined with information relating to our membership, helps inform decisions about the future of the levy and our investment strategy. The result of this modelling is also published in the Purple Book, along with our progress towards our funding objective and financial resilience, which shows that we remain on track to meet our objective to be fully-funded by our target funding horizon.
The Purple Book is not just of use to the PPF. The data in the book is valued by industry experts including pension scheme trustees, chief finance officers, and consultants to help benchmark their own schemes against the universe. The government also uses it in policy discussions to understand the impact of policy change on the DB pension landscape.
As such, the value of the annual publication is clear: by sharing our knowledge, expertise and insights in a comprehensive, transparent and accessible way, we are better able to manage the risks that we face, and to promote best practice in managing risk, for the benefit of scheme members.
Lisa McCrory is chief actuary of the Pension Protection Fund and will take part in a webinar on the Purple Book hosted by Professional Pensions on 17 January at 10.30am.
More on Defined Benefit
Trustees have 'false confidence' in their scheme strategies
Nearly every trustee is confident of the next stage in their scheme’s strategy, despite almost an equal number being forced to consider replacing plans within the prior 12 months, according to research by Barnett Waddingham.
Companies overstate liabilities by £60bn amid Covid deaths
Companies could be overstating their pension liabilities by up to £60bn due to their life expectancy assumptions, according to XPS Pensions Group.
Updated: Landmark GMP ruling 'significant challenge' for schemes
Defined benefit (DB) schemes that provide GMPs must revisit and, where necessary, top-up historic cash equivalent transfer values (CETVs) that have been calculated on an unequal basis, a landmark court judgment said last week.
FCA must stop DB transfer history repeating
Regulators must act now to impose some "proper regulation" to stop another defined benefit (DB) transfer advice disaster, saysTim Sargisson.
DB funds as an economic lever could derail schemes from responsibilities
Opportunities for defined benefit (DB) schemes to pursue investment approaches that help repair the UK’s economy cannot stand in the way of improving member outcomes, Aegon says.
