Latest analysis of FTSE100 pension positions by LCP’s Pensions Explorer shows that the combined IAS19 surplus has continued to grow at record levels over the three months to 30th June 2022.  The aggregate surplus now stands at over £130bn – broadly equivalent to an IAS19 funding level of around 135%.  The combined position was close to being fully funded on an insurer buyout basis for the first time, meaning some schemes are now overfunded on this measure, and are considering best use of that surplus. 

This is unchartered territory for many schemes and LCP are warning that sponsors need to plan now for managing surpluses. With a volatile economic environment and rising inflation, companies will be needing to scrutinise their pensions spend far more and ensure there are mitigation plans in place.   

Earlier this month, LCP revealed in their latest Accounting for Pensions report that FTSE100 companies are sitting on up to an additional £10bn of pension “hidden” surplus due to the long-term impact of the pandemic on life expectancy which could result in up to a 2% fall in liabilities depending on the specifics of their scheme. This is ”hidden” because many companies are not currently recognising this impact within their corporate accounts. 

Jonathan Griffith, Partner at LCP, commented: "It is entirely understandable that the government and regulators want to make sure there is enough money in company pension schemes to meet the pension promises which have been made. But after years of shortfalls, we are now starting to see companies with significant pension scheme surpluses reported in their annual accounts. It is time to review the funding agreements to reflect the new economic environment so that companies continue to ensure there is appropriate security backing members’ benefits but do not end up over-funding and contributing to pension schemes to the detriment of their ability to invest in their business or pay good wages and pension contributions to their current workforce."