Data from the Pensions Regulator shows continued improvement in funding levels for defined benefit (DB) pension schemes, as trustees review endgame options amid an expanded menu of options.
Two thirds (67%) of DB schemes with valuation dates between September 2023 and September 2024 were in surplus on a technical provisions basis, according to the Pensions Regulator (TPR).
This is a significant improvement for these schemes, as just 39% were in surplus three years previously.
However, the data covers the last tranche of schemes using the previous DB funding regime, with next year’s due to be the first under the new system that was introduced in September 2025.
Jon Forsyth, partner and head of pensions development at LCP, said this transition meant next year’s data “will shed more light on how schemes are shaping up against those new requirements”.
He continued: “In the meantime there is lots for schemes to be thinking about now that they find themselves better funded – not least the growing number of endgame options, and the new surplus sharing regime coming in from April next year, which could offer the chance to share some of this improvement in funding between sponsors and members.”
“The stronger funding backdrop gives schemes much more room to plan proactively, but the final few years of a recovery plan still require disciplined funding, investment and covenant management if trustees are to convert that progress into a secure endgame.”
Nigel Jones, Broadstone
Recovery plans for those still reporting a shortfall have reduced in length, TPR’s data showed, with the average recovery plan now four years, compared with 5.7 years the previous time these schemes reported.
Nigel Jones, executive director for pensions at Broadstone, said this was “another clear sign” of progress for DB schemes, and was “particularly encouraging for those schemes that remain in deficit”.
Shorter recovery plans suggested that “many trustees are now within much closer reach of full funding than they were only a few years ago”, Jones added.
“For schemes still carrying a deficit, the priority should be to use that improved position carefully rather than simply assume the job is done,” he continued. “Trustees need to consider how much risk remains appropriate, whether contribution plans are still fit for purpose and how quickly they can move towards their longer-term objective without putting unnecessary pressure on the sponsor.
“The stronger funding backdrop gives schemes much more room to plan proactively, but the final few years of a recovery plan still require disciplined funding, investment and covenant management if trustees are to convert that progress into a secure endgame.”
