Lloyds Banking Group made a total of £2.2bn of pension scheme deficit reduction contributions (DRC) in 2022, its full year results report has revealed.
These contributions were made to the group’s three main defined benefit (DB) pension schemes.
Fixed DRCs of £800m were paid in full during the first quarter of 2022, while variable contributions of £1.44bn were paid during the year to cover the full amount of agreed contributions relating to 30 per cent of in-year shareholder distributions of £1.04bn, plus an additional £400m paid in December.
Lloyds stated that the additional payment represented an acceleration of future planned contributions following strong capital generation in 2022 and ahead of the triennial renegotiation of pension contributions.
While the group’s three main DB schemes continue to have an actuarial funding deficit, they are in a “significantly stronger” financial position than at the end of 2021, when the deficit was around £4bn.
Lloyds expects to make further DRCs of £800m in the first half of 2023, consistent with 2021 and 2022.
The group has discussed with the scheme trustees the likelihood that further variable contributions would not be necessary in 2023 and beyond, depending on the outcome of the triennial valuation as at 31 December 2022.
Lloyds stated that it expected 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 for 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.
According to the report, the pension schemes’ funding position remained robust and did not experience any material impact from the market volatility seen in the latter part of 2023.
Asset prices fell in line with the broader market and hedges fell in value as interest rates rose.
A similar impact was seen on liability valuations, which also fell in value due to the portfolio being almost fully hedged.