Nearly two in five pension schemes in funding surplus – Mercer

Around 37 per cent of pension schemes are in surplus against their funding target, according to new data released by Mercer.

Mercer’s 2018 Valuation Survey found that the number of schemes in surplus had increased by 10 per cent from 27 per cent in its 2015 survey.

Mercer director, Simon Turner commented: “One of the striking findings from the 2018 survey is the step-change in the number of schemes in surplus on funding assumptions. Three years ago little more than one in four schemes were in surplus against their agreed funding target. Now almost two out of five schemes are in a surplus position.”

Despite this, there is some cause for concern as Mercer’s study found that 38 per cent of pension schemes had not agreed a long-term investment target.

Turner continued: “However, having a surplus against a funding target is rarely the end of the journey. Trustees and sponsors need to set and agree longer-term objectives to improve the chances of paying members’ pensions as they fall due.”

The survey also found that integrated risk management has become a key part in trustees’ decision-making processes, with three-quarters of pension schemes reviewing investment strategy alongside the valuation process.

Two in three schemes seek external covenant analysis and twice as many receive daily updates of their funding position compared to 2015.

Turner added: “It is clear trustees are looking at funding, investments and employer covenant together when undertaking actuarial valuations, and improvements have been made in risk management and regular monitoring. However, less than 20 per cent of pension schemes have formally documented their approach to risk management which begs the question - are trustees really using the IRM framework to make practical decisions?”

Mercer’s survey also revealed that over half of schemes had carried out scheme specific analysis on life expectancy in the 2018 valuation survey compared to less than a third in 2015, while two-thirds of schemes surveyed were closed to accrual. Three years ago, nearly half of schemes were still open to new benefit accrual.

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