The average defined benefit (DB) funding level reached more than 100 per cent (103 per cent) for the first time under the outgoing defined benefit (DB) funding regime, with nearly two thirds (65 per cent) of DB schemes in surplus, research from Aon has found.

Both of these figures were higher than any previous year since 2005, with DB funding improvements pushing the average funding level rise from 92 per cent for tranche 15 in 2020 to 103 per cent for tranche 18.

Improvements were also seen in the average recovery period, as Aon found that the average recovery period for schemes in deficit decreased to 3 years, down by 2.2 years compared to three years ago.

In addition to this, the percentage of schemes requiring a recovery plan fell from 66 per cent to 35 per cent.

The proportion of schemes with contingent security, meanwhile, remained "reasonably stable" despite improving funding levels and, for the first time, the majority (71 per cent) of schemes with such arrangements were in surplus.

However, Aon found that the proportion of recovery plans including an element of additional return in excess of the discount rate reduced "significantly" to 33 per cent.

Aon confirmed that, since the dates of these valuations, average funding levels have continued to improve from a historically high starting point – although there is some variation between schemes.

More broadly, Aon found that more than two thirds (67 per cent) of DB schemes used a long-term funding target, with 71 per cent of those having a plan to achieve the target by the time the scheme is significantly mature.

In terms of timescale, most (74 per cent) schemes with long-term funding targets were expecting to reach their target in under 10 years.

The report also found that more than two thirds (67 per cent) of schemes took an integrated approach to risk management that included consideration of downside scenarios and contingency planning.

In addition to this, 70 per cent of schemes used a third party/specialist assessment of the employer covenant, which Aon said was in line with The Pensions Regulator's call for an integrated approach.

In particular, 94 per cent of schemes hedged at least 70 per cent of their interest rate risk, and 93 per cent hedged at least 70 per cent of their inflation risk, showing an increase from three years ago.

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