It’s been another tough year for financial markets. Persistently high inflation and further increases in interest rates have meant that many pension schemes, like the UKRF, have seen the value of their investments, or ‘assets’, fall.
At the same time, the expected cost of paying members’ defined benefit pensions (our liabilities) has fallen too, affected in a similar way by the same economic conditions.
Even though our asset and liability values are down, we’re pleased to confirm that the UKRF’s funding level remains strong and has actually improved slightly during the year.
2023 was an ‘interim check’ year
We review the UKRF’s finances every year. The 2022 review was our three-yearly, in-depth review (an actuarial valuation) and this year was a lighter, interim check – just to make sure things are progressing as expected. Here’s what we found:
We’re still in surplus
Our 2022 actuarial valuation showed that the UKRF remained in a funding surplus (see below).
Our 2023 check showed that the UKRF was still in surplus, and that this surplus had remained consistent at £2 billion. Our funding level (which measures our assets compared to our liabilities) improved slightly during the year to 109% (up from 108% in 2022).
What’s changed?
Compared to last year, there’s been a further fall in asset values. Liability values have continued to fall too, by a similar amount.
Spotlight: What does ‘a funding surplus’ really mean?
To answer this question, you first need to know that an actuarial valuation (or interim check) is a calculated estimate. A valuation is worked out at a fixed point in time and looks at how much the UKRF is likely to have in assets compared to how much it expects to pay in members’ benefits, both now and in the future. Independent experts (actuaries) help the Trustee make these estimates by assessing lots of factors like life expectancy trends, and economic and market conditions.
The UKRF is in ‘surplus’ when the value of its assets is expected to be higher than the value of its liabilities, based on circumstances at the time. This surplus is conditional on circumstances at the time; it’s not a fixed value. If there’s a change in any of the assumptions about the underlying factors affecting the value of the UKRF’s finances (life expectancy, economic forecasts etc), the gap (surplus or deficit) between asset and liability values will change too.
Keeping our reliance on Barclays low
We know that the UKRF needs to pay benefits for many years to come and that our funding level may fluctuate in the future. We’re also in a more independent and controlled position if the UKRF doesn’t have to rely on Barclays for financial support.
That’s why we’re continuing to focus on maintaining our current strong funding position and making sure our reliance on Barclays support remains low.
We agreed a pause on Barclays’ contributions in 2022
Following our 2022 actuarial valuation, we agreed to Barclays’ request to pause its contributions for 12 months. This means that the contributions Barclays would normally make towards members’ benefits (like matching Afterwork contributions for example) have been met by the UKRF from 1 February 2023. Please be assured that your benefits have not been affected by this decision.
Before agreeing to this request, with the support of our advisers, we reviewed our asset values to make sure they were sufficiently higher than the value of our liabilities, to ensure that there was a material 'buffer' and that we could maintain an enhanced low dependency on Barclays. We also checked Barclays’ ability to support the UKRF (its employer covenant) and were confident it remained strong.
We’ve agreed a continued pause on Barclays’ contributions
Last year, we also said that we would test the UKRF’s position after 12 months, to decide if this pause on contributions could continue. We have assessed the UKRF’s financial position as at 30 September 2023 using the same strict enhanced low dependency conditions as we did for the initial request and can confirm that this pause can continue for a further 12 months. We’ll run the same tests and checks again next year.
Barclays are still here if we need them
Barclays continues to uphold its overall responsibility as the sponsor for the UKRF. In addition, if the UKRF is estimated to have a funding deficit again, Barclays will provide a pool of assets as security, which we can use if needed, or if Barclays became insolvent.
What about our investments?
We invest the UKRF’s defined benefit assets on behalf of members. Here is how they did over three different time periods to 30 September 2023.
| Total returns to 30 September 2023 | 1 year | 3 years, annualised | 5 years, annualised |
|---|---|---|---|
| These figures only show the return from invested assets. They exclude the effect of money paid out (e.g. pension payments) or money paid in (e.g. contributions from Barclays). | |||
| Total returns to 30 September 2023Total investment returns | 1 year-7.3% | 3 years, annualised-10.7% | 5 years, annualised-2.4% |
| Total returns to 30 September 2023Liability returns | 1 year-6.3% | 3 years, annualised-11.6% | 5 years, annualised-3.2% |
The ‘liability returns’ are the returns that UKRF assets need to achieve to maintain the funding position.
And finally, by law, we need to tell you:
- Barclays has not received any money back from the Fund since the 2022 Summary Funding Statement;
- The Fund has not received any directions from the Pensions Regulator to change contributions or benefits, nor has the Pensions Regulator made any modifications to the Fund; and
- If the UKRF were to discontinue or ‘wind up’, members’ benefits would need to be secured with an insurance company (instead of by the Fund). The cost of providing pensions in this way is much higher than providing pensions by the Fund. At 30 September 2022, the value of the Fund’s assets was more than the estimated amount needed to secure all members’ accrued benefits. This surplus was £0.5 billion (compared to a £7.69 billion deficit in 2019), meaning there was a funding level of 102% (compared to 82% in 2019). There is no intention to wind up the Fund.