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  • Consultation response confirms updated valuation assumptions will reflect lower pricing in the bulk annuity market 
  • Updates include adopting a yield curve approach to determining liabilities when assessing schemes for PPF entry
  • Following stakeholder feedback, changes will be introduced for valuations with an effective date on or after 1 May 2023 

The Pension Protection Fund (PPF) has today published its consultation response, confirming it will go ahead with proposals to change the assumptions it uses for certain valuations which provide an estimated price for bulk annuity providers in the buyout market. 

The changes to the assumptions will ensure that those schemes who may be able to secure benefits above PPF levels are given the opportunity to test the market. The new assumptions will take effect from 1 May 2023, and updated assumptions guidance documents are now available on the PPF’s website. 

As part of the updated approach, the PPF will now adopt a yield curve approach when assessing schemes for entry to the PPF under section 143 of the Pensions Act 2004. This will place a more accurate value on liabilities. Valuations carried out for levy purposes under section 179 will not be moved onto this more complex approach. 

Lisa McCrory, PPF’s Chief Finance Officer and Chief Actuary, said: “We are pleased to announce that we will be updating the valuation assumptions to ensure that those schemes that have sufficient assets to secure benefits above PPF levels when their employer becomes insolvent are given the opportunity to test the market.  

“There was general agreement that bulk annuity prices had altered sufficiently enough to merit a change to the assumptions, and there was also strong support for the move to a yield curve approach for section 143 valuations.  

“We are very grateful to all those who took the time to respond to our consultation and would like to thank those who helped shape the proposals.” 

The six-week consultation earlier this year sought views from the industry on changes to the actuarial assumptions required for valuations carried out under sections 143, 152, 156, 158 and 179 of the Pensions Act 2004.  

The majority of stakeholders commented that introducing the updates from 1 April would mean valuations with an effective date of 31 March and 5 April would be carried out on the different sets of assumptions. As a result, the new assumptions will take effect from 1 May 2023. 

Other changes include increasing discount rates for certain types of benefits, moving to the latest mortality projections model, and amending the calculation of expenses. The combined impact for almost all schemes will be a reduction in the assessed value of scheme liabilities.  

Notes to editors 

  • The Pensions Act 2004 requires the PPF to keep the assumptions used for valuations under sections 143, 152, 156, 158 and 179 of the Act in line with the estimated price of securing PPF levels of compensation with a bulk annuity provider. 
  • The PPF proposed adopting a yield curve approach to determining liabilities for the purpose of section 143, 152 and 158, but does not propose changing the approach to determine liabilities for sections 156 and 179. 
  • A section 143 valuation is carried out during a PPF assessment period. The assets and liabilities for the section 143 valuation are established in accordance with section 143, the Pension Protection Fund (Valuation) Regulations 2005 (SI 2005 / 672), as amended, and guidance issued by the Board. The valuation is carried out by an actuary appointed by the Board and the valuation is approved by the Board. 
  • A section 152 valuation is carried out following an application for reconsideration under section 151 of the Pensions Act 2004. 
  • Section 156 valuations must be carried out on a regular basis by a scheme that has been granted authorisation by the Board to run as a closed scheme having demonstrated that it was over 100 per cent funded at a section 143 valuation. 
  • A section 158 valuation is carried out by a scheme that has been running as a closed scheme, following an application to commence a further assessment period under section 157.
  • A section 179 valuation estimates a scheme's funding if the employer was to enter insolvency. The section 179 valuations are used to apportion the PPF levy. 

About the PPF  

The Pension Protection Fund (PPF) is a public corporation, set up by the Pensions Act 2004, and has been protecting members of eligible defined benefit (DB) pension schemes across the UK since 2005. The PPF is run by an independent Board and accountable to Parliament through the Secretary of State for the Department for Work and Pensions. It protects close to 10 million members belonging to more than 5,200 pension schemes. If an employer collapses and its DB pension scheme cannot pay members what they were promised, the PPF pays compensation for their lost pensions. The PPF is funded by a levy charged to eligible schemes, the return on its investments, assets from pension schemes transferred into the PPF and recoveries from insolvent employers.

The PPF is one of the UK’s largest asset owners with £39 billion of assets under management. It also administers the Fraud Compensation Fund (FCF) the government’s Financial Assistance Scheme (FAS) and across both the PPF and FAS looks after nearly 440,000 members.  

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PPF Press Office  
020 8406 2107  
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