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07 March 2023

LBG results for 2022: Pension matters

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Pension matters in LBG

In its press release of 22 February announcing its results for the financial year ended 31 December 2022, Lloyds Banking Group provided some important information regarding the funding of the deficits in its defined benefit pension schemes as below:

“The Group’s three main defined benefit pension schemes continue to have an actuarial funding deficit, but are in a significantly stronger financial position than at 31 December 2021, when the deficit was c.£4 billion. During 2022, deficit contributions of £2.2 billion were paid into these schemes. The Group expects to make a further fixed contribution of £0.8 billion in the first half of 2023, consistent with 2021 and 2022.

The Group has discussed with the Trustee the likelihood that further variable contributions will not be necessary in 2023 and beyond, dependent upon the outcome of the triennial valuation as at 31 December 2022. The Group expects to have substantially agreed the triennial valuation with the Trustee by the end of the third quarter of 2023, along with a revised contribution schedule in respect of any remaining deficit. Trustee agreement will be conditional upon prior feedback from the Pensions Regulator.

The Group also expects that future contributions will become increasingly contingent in nature, such that they are only paid into the schemes if required. This will be reported on in future periods.

The schemes’ funding position remained robust and did not experience any material impact from the market volatility seen in the latter part of the year. Asset prices fell in line with the broader market and hedges fell in value as interest rates rose. A similar impact was experienced on liability valuations which also fell in value given the portfolio was almost fully hedged. The Group’s schemes used liability-driven investment strategies to achieve this outcome and as the hedging was maintained throughout the crisis, the strategy performed as expected.”

This is good news for the pension schemes and very good for Lloyds Banking Group but, to use an old refrain, what about the workers?

Members of the Group’s defined benefit schemes have had their pensionable pay frozen since 2014 so pensions increasingly bear little relation to ‘final salaries’ on retirement. Add to this the impact of inflation on the value of accruing pensions and pensions in payment and the problem is exacerbated.

Given the more positive outlook for the pension schemes and the reduced funding that LBG will benefit from going forward, Accord is asking the Group what it can do to restore some of the value that has been lost by staff and pensioners.

We’ll be making the case strongly in our discussions with the Group about the triennial valuation of the scheme.

Any queries should be sent to: [email protected]

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