Using our 2019 Long-Term Capital Markets Assumptions and our estimate of the average current pension profile, we projected forward the buyout position of the average UK pension scheme. By our estimate, the average plan can expect to be in a position to buy out its liabilities in full within the next decade, based on current planned contributions and investment strategy.

But many things could knock a plan off course. Plans are still heavily reliant on investment returns to take them to their destination, so increased volatility, or a period of poor returns, may well set plans back several years. The cash flow drag looks small, on average, because many plans are still receiving deficit contributions that keep their cash flow position neutral, for now. However, funds that are already cash flow negative will feel a greater drag, which maybe further amplified by a reliance on investment returns and volatile markets—especially if an upset in markets comes sooner rather than later.

So while we may finally have “Land ahoy!” it’s still choppy seas, and these increasingly weather-beaten ships have many challenges to come before they reach terra firma.

The average pension can expect to be able to buy out liabilities before 2029

Projected buyout funding level for the average UK plan

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Source: Pension Protection Fund, the Pensions Regulator, J.P. Morgan Asset Management; data as of October 29, 2018.

Note: Illustrative pension plan based on data from the Pension Protection Fund (PPF) Purple Book and statistics from the Pension Regulator’s Annual Funding Statement. Liability cash flows are for the PPF’s own liabilities.
Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.

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