Funded occupational pension schemes in the UK: January to March 2021

• For the first time, the value of overseas direct investments in corporate and central government bonds is published; at end-March 2021, overseas holdings formed 46% of corporate bonds and 6% of central government bonds.

• The market value of pension funds was £2.4 trillion at end-March 2021.

• Forward foreign currency contracts grew by 15% for positive value derivative contracts, and 19% for negative value derivative contracts between end-December 2020 and end-March 2021; this may be because of hedging against currency risks, in the context of economic shocks.

• Employee and employer contributions to private sector defined contribution schemes grew by 6% and 10% respectively, from Quarter 4 (Oct to Dec) 2020 to Quarter 1 (Jan to Mar) 2021.

Figure 1 shows total membership for UK-funded occupational pension schemes, as at end-September 2019 to end-March 2021. For private and public sector defined benefit and hybrid (DBH) schemes, membership split by type (active, deferred and pensioner) can be found in the accompanying dataset. However, we are unable to provide a split for membership types for private defined contribution (DC) schemes using the Financial Survey of Pension Schemes (FSPS) survey data: while some schemes distinguish between types of membership, others only count total membership.

While total membership remained stable for private and public sector DBH schemes at end-Quarter 1 (Jan to Mar) 2021, total private DC membership experienced a quarterly increase of 2%, and an increase of 13% when compared with end-Quarter 3 (July to Sept) 2019 (Figure 1).

Figure 2 presents estimates for total employee and employer contributions for all scheme types, with an employer normal and deficit reduction contribution (DRC) split.

Between Quarter 4 (Oct to Dec) 2020 and Quarter 1 (Jan to Mar) 2021, total employee contributions experienced an increase of 12%; the total of normal defined benefit and hybrid (DBH) and defined contribution (DC) employer contributions grew by 11%, while total employer contributions fell by 5%. This fall in employer contributions is driven by a fall in private sector DBH employer DRCs, from £6.2 billion to £4.6 billion (27%). Given the nature of DRC payments, its volatility can be seen in Figure 2, relative to total normal employer contributions, which are regular payments made.

Figure 3 shows employee and employer contributions to private sector DC schemes, between Quarter 3 (July to Sept) 2019 and Quarter 1 2021.

For DC schemes in Quarter 1 2021, employee contributions increased by 12%, and employer contributions also increased by 12%, in comparison with Quarter 1 2020.

During Quarter 1 2021, jobs on furlough fell from 4.9 million to 4.3 million. It is not known whether these employees returned to work from furlough, however, secondary analysis conducted by HM Revenue and Customs in October 2020 indicated that 90% of employees who left the Coronavirus Job Retention Scheme between April and July 2020 were still on their original payroll in August, suggesting they remained working for their original employer. Furthermore, from Quarter 4 2020 to Quarter 1 2021 the seasonally adjusted unemployment rate has fallen from 5.2% to 4.9%. Workers returning to work after being on furlough may lead to an increase in pension contributions.

Figure 4 provides a breakdown for total benefits, by scheme type, between Quarter 3 (July to Sept) 2019 and Quarter 1 (Jan to Mar) 2021. Benefits comprise pension payments and income withdrawals, plus lump sums including death benefits. For a further breakdown of benefits by income withdrawal and lump sum payments, please see the accompanying dataset.

Figure 4 shows that most benefits in UK-funded occupational pension schemes are from private sector defined benefit and hybrid (DBH) schemes. Here, benefits have fallen by 9% quarterly, driven by a decrease in pension payments and income withdrawals.

At the end of March 2021, UK-funded occupational pension schemes had assets of between £2.4 trillion and £2.9 trillion, depending on the measure used (Table 1). This section looks at the nature of investments of UK-funded occupational pension schemes' assets and gross liabilities other than pension liabilities.

Total assets and liabilities

The "market value of pension funds" and total assets and liabilities remain relatively unchanged compared with the previous quarter results. Table 1 shows that gross liabilities other than pension liabilities, excluding derivatives, grew by 1% between end-December 2020 and end-March 2021. During this period, derivatives contracts with a negative value also grew, by 3%, whilst positive value contracts fell by 2%.

Notes:

1. A small proportion reported net; this probably produces slight overestimates of positive balances and slight underestimates of negative balances.

Pension scheme investments

The value of gross assets excluding derivatives of private sector defined benefit and hybrid (DBH) schemes fell by 2% between the end of Quarter 4 (Oct to Dec) 2020 and the end of Quarter 1 (Jan to Mar) 2021, as can be seen in the dataset. However, private sector defined contribution (DC) and public sector DBH schemes experienced growths of 9% and 2% respectively. Figures 5, 6 and 7 show the main categories of assets collected in the Financial Survey of Pension Schemes (FSPS): pooled investment vehicles (PIV), direct investments, and insurance policies¹.

Private sector DBH schemes saw a fall in all three asset classes between Quarter 4 2020 and Quarter 1 2021 (Figure 5). Direct investments fell from £1,087 billion to £1,059 billion (3%) and PIV values fell from £761 billion to £748 billion (2%). Insurance policies, which are used predominantly by private sector DBH schemes, also fell from £119 billion to £112 billion (6%).

Figure 6 shows that for private sector DC schemes, between Quarter 4 2020 and Quarter 1 2021, direct investments grew from £13 billion to £15 billion (15%), while insurance policies remained constant at £1 billion. PIV assets form the largest component of private sector DC investments. While mixed assets form the largest component of PIV holdings for private sector DC schemes (33%), commodity and energy saw the largest increase in growth (16%) between Quarter 4 2020 and Quarter 1 2021².

Figure 7 indicates that, for public sector DBH schemes between Quarter 4 2020 and Quarter 1 2021, the values of direct investments and insurance policies remained broadly stable. The dataset shows that within direct investments, a fall in long-term debt securities (7%), cash and cash equivalents (7%), short-term debt securities (33%) and property (7%) were offset by a growth in equities (1%) and unquoted private equity and alternatives (11%). Also, PIV values for public sector DBH schemes grew from £257 billion to £265 billion (3%).

Direct investments

Private sector direct investments constituted 86% of total direct investments at end-March 2021, as can be seen in the dataset; almost all of this was held in private sector DBH schemes. Long-term debt securities form 72% of total private sector direct investments at end-March 2021. Figure 8 shows that for total long-term debt securities, the majority of this was held in central government bonds, within the UK.

As can be seen in Figures 8 and 9, there was a slight decline for total central government bonds and corporate bonds between end-December 2020 and end-March 2021, by 5% (Figure 8) and 2% (Figure 9) respectively. For long-term debt securities, a greater proportion of corporate bonds were held overseas than central government bonds; for example, at end-March 2021, when overseas holdings formed 46% of corporate bonds, while only 6% for central government bonds.

Liabilities

Other (non-pension) gross liabilities of UK-funded occupational pension schemes were estimated at £220 billion at end-March 2021 (Table 1). They consist mainly of repurchase agreements (90%), as can be seen in Figure 10. Schemes also had small amounts of cash and borrowing liabilities such as overdrafts (3%) and payables (4%).

Derivatives

Derivatives contracts with a negative value also grew, by 3%, while positive value contracts fell by 2% (Figure 11). The main types of derivatives used by pension schemes continue to be swaps and forward foreign currency contracts. As can be seen in the dataset, forward foreign currency contracts grew by 15% for positive value derivative contracts, and 19% for negative value derivative contracts. This could potentially be because of hedging against currency risks, in the context of economic shocks.

Notes for: Balances

1. For definitions for PIV, direct investments and insurance policies, see full glossary.
2. As explained in the previous statistical bulletin, changes to the sample in Quarter 4 2020 resulted in higher estimates –in light of this, estimates, including in earlier periods, remain provisional, and are in the process of being reviewed.

Active members 

Members of pension schemes who are current employees and are either contributing to the scheme themselves or having contributions made on their behalf (for instance by their employer).

Auto-enrolment and automatic enrolment 

Under reforms brought in by the Pensions Acts 2008 and 2011, employers must enrol all eligible employees into a qualifying private pension. Workers can opt out but will be re-enrolled every three years. Auto-enrolment was rolled out to employers in stages between 2012 and 2018. Minimum contribution rates were established and were also introduced in phases:

• before 6 April 2018: total contributions (employer plus employee, including tax relief) were 2% of qualifying earnings (the minimum band of earnings on which pension contributions must be made), of which employer contributions 1%

• from 6 April 2018 to 5 April 2019: total contributions were 5% of qualifying earnings, of which employer contributions 2%

• from 6 April 2019 to date: total contributions were 8% of qualifying earnings, of which employer contributions 3% 

Deferred members 

Members of pension schemes who have accrued rights to pensions that will come into payment in future but who are no longer actively contributing (or having contributions paid on their behalf) into the scheme. Also known as members with preserved pension entitlements. 

Defined benefit (DB)

These pension schemes are ones in which the rules of the scheme specify the rate of benefits to be paid. A common DB scheme is a final salary scheme in which the benefits are based on the number of years of pensionable service, the accrual rate and the final salary. An alternative DB arrangement is the final salary scheme is the Career Average Revalued Earnings (CARE) scheme. 

Defined contribution (DC)

These pension schemes are ones in which the benefits are determined by the contributions paid, the investment return on those contributions (less charges) and the type of annuity purchased upon retirement, if any. It is also known as a money purchase pension. 

Government managed pension schemes 

Schemes classified as having the "pension manager" in the Government sector (S.13) of the national accounts. In such cases, the Government sector (central and local government) is judged to be ultimately responsible for the schemes' pension obligations (the "'pension manager") even if the Government sector is not responsible for scheme administration (the "pension administrator").

Pensioner members 

Members of pension schemes who are receiving pensions or income withdrawals; sometimes known as beneficiaries. 

A full glossary of terms is available.

Weighting and estimation 

Information on the "Sampling" and "Weighting and estimation" methods for the Financial Survey of Pension Schemes (FSPS) can be found in Section 5 of UK pension surveys: redevelopment and 2019 results.

Revisions 

A National Accounts Revisions Policy is available to assist users with their understanding of the cycle and frequency of data revisions. You are strongly advised to read this policy before using these data for research or policy-related purposes. Please note that all four quarters of 2019 will not now be subject to revisions. Data have been revised, partly because of late survey returns, and partly because of disaggregate data revisions. 

Survey coverage 

The Office for National Statistics (ONS) replaced the MQ5 Pension Funds Survey (PFS) with the Financial Survey of Pension Schemes (FSPS) from Quarter 2 (Apr to June) 2019. The FSPS is a quarterly survey that collects data on membership, income and expenditure, transactions, assets and liabilities of UK-funded occupational pension schemes.

In practice, this means that all occupational schemes for private sector employees are in the survey, but the survey does not include all occupational schemes for public sector employees: funded schemes for public sector employees such as the Local Government Pension Scheme (LGPS) are included, but unfunded schemes such as those for civil servants, teachers and NHS staff are not. 

Breakdowns 

We present results for pension schemes for private sector employees (including those covered by the Pension Protection Fund) versus those for public sector employees; and by defined benefit including hybrid pensions versus defined contribution pensions. We use the term "schemes for public sector employees" throughout the article but strictly speaking, these are government managed pension schemes (see glossary).

There are no defined contribution occupational pension schemes for public sector employees, so there are three categories: public sector employee schemes, which are defined benefit and hybrid schemes, and private sector employee schemes, which may be further divided into defined benefit and hybrid and defined contribution schemes. See glossary for the FSPS definitions of these categories. 

Quarter 1 equals January to March; Quarter 2 equals April to June; Quarter 3 equals July to September; Quarter 4 equals October to December.

Response rates 

The response rate for Quarter 1 (Jan to Mar) 2021 for the FSPS, at the period of closedown, was 79%. The response rate has been impacted slightly by a small number of respondents having difficulty completing survey returns because of the coronavirus (COVID-19) pandemic and associated lockdowns. Please note that even though the response date has passed, it is possible for there to be revisions to submissions for the previous quarter, and for late submissions to be provided. However, all four quarters of 2019 will not be subject to revisions.