New analysis by LCP’s Pensions Explorer shows that as of 30th June, the combined IAS19 pensions surplus of FTSE 100 companies stands at around £70bn, as scheme funding levels remain robust thanks to higher bond yields.

With the surplus broadly level since the start of the year, UK pensions remain in an incredibly strong financial position, with average accounting funding levels of around 120%. Over half of FTSE100 pension schemes are now also fully funded on an ultra-low-risk ‘gilts-flat’ basis, and this leads many scheme sponsors to consider ‘what’s next’ for their schemes.

Many schemes will be turning to insured de-risking as the traditional endgame solution. However, with the insurance market extremely busy and strong funding on low-risk measures, many scheme sponsors are reassessing their strategy. Sponsors are now increasingly looking at ways to realise value from these surpluses rather than seeking to get rid.

With improved funding positions and ongoing challenges to corporate finances, LCP is encouraging corporate boards to proactively engage with pensions and drive the strategy. Given the size of pension schemes relative to sponsors for many, this represents a timely opportunity to improve outcomes for all stakeholders. Whilst an insurance buyout may end up being the right solution in a few years’ time, in the interim, LCP expects an increasing number of scheme sponsors to utilise such significant scheme surpluses to enhance and fund ongoing DC contributions for existing staff to relieve some of the cashflow pressures on the business. Also, potentially boosting funding for DB scheme members who may be struggling with inflationary pressures and the current cost of living.

Jonathan Griffith, Partner at LCP, commented: “As an indicator of the overall UK pensions landscape, this quarter’s analysis of FTSE 100 pension funds demonstrates that funding levels remain consistently strong, as increasing numbers of schemes are reaching record high levels of funding.

“Scheme sponsors and trustees are now being faced with the decision, in many cases much earlier than anticipated, about their endgame solutions. Whilst buyout may have originally been the target, parties should review the position, confirm objectives are unchanged in the current climate, and reassess their strategy. With so much innovation, I believe that it is time to embrace the opportunities and generate value from these surpluses for the benefit of all stakeholders.”