Unparalleled levels of competition in the buy-in market coupled with upcoming government policy could "re-write the landscape" the defined benefit (DB) pension landscape and increase the number of investment opportunities for schemes, according to LCP.

The firm’s latest Pensions Explorer results revealed that the combined IAS19 funding level among FTSE 100 companies’ DB schemes remained high at around 120 per cent at the end of March.

This corresponded to a surplus of £55bn for the UK pension schemes of FTSE 100 companies.

LCP said that with the announcements of corporate 2024 year-end results showing "strong" funding levels, the outlook for schemes remains encouraging.

The firm also noted that these high funding levels are in the context of "unparalleled" levels of competition in the buy-in market.

In particular, LCP’s analysis highlighted the “record-breaking” number of buy-in and buyout transactions in 2024, driven by insurers reacting to a surge in demand, particularly from smaller, well-funded schemes.

The consultancy said that this market growth has provided competitive pricing for schemes looking to go to market over the short-term, whilst also presenting increased insurance options in the future for schemes looking to run on for a period.

In addition to this, the consultancy said the Chancellor’s Spring Statement, alongside the upcoming response to the DB Options consultation and a forthcoming Pensions Bill, has the potential to “re-write the landscape” with new flexibilities around sponsors getting value from DB surplus and member benefits, as well as new investment opportunities.

“Despite the ongoing market uncertainty, FTSE 100 annual results have shown a string of positive pensions results,” LCP partner and head of endgame innovation, Jonathan Griffith, said.

“Funding levels have remained strong and schemes continue to plan for their chosen endgame strategy.

“With the potential for increased flexibility and new options in the future, there is lots for trustees and sponsors to consider and factor into their strategy now in order to ensure no risk of regret.”

LCP consultant and part of the endgame innovation team, Aaron Chaderton, added: “Schemes have great endgame possibilities at the moment.

“The buy-in market is strong, with competition seen across all scheme sizes, and the exciting government surplus proposals will help schemes looking to run on for a period or over the long-term.”
 

---