Defined benefit (DB) pension scheme funding levels have continued to improve despite a maturing DB population, with analysis from The Pensions Regulator (TPR) revealing that the majority of tranche 18 schemes are now in surplus.

TPR's analysis of tranche 18 schemes, which have an effective valuation dates from 22 September 2022 through 21 September 2023, inclusive, revealed that 62 per cent of schemes reported a surplus position.

This marks a significant increase on the 27 per cent in surplus in tranche 15 (which covered the same cohort of schemes three years ago), and also continues the trend seen last year when 47 per cent of tranche 17 schemes were in surplus.

According to the report, the average funding level had increased by 15 per cent over the three-year cycle, rising from 89 per cent in tranche 15 to 104 per cent in tranche 18.

Average recovery plan lengths also reduced by 1.9 years between tranche 15 and 18, falling from 6.3 to 4.4 years.

In addition to this, the average buyout funding level improved from 68 per cent in tranche 15 to 91 per cent in tranche 18, marking a significant increase compared to the 80 per cent reported for tranche 17.

This is despite a maturing DB population, as Broadstone chief actuary, David Hamilton, pointed out that more than 60 per cent of schemes had more than half their liabilities relating to pensioner members, almost 14 per cent higher than last year’s analysis.

More broadly, Hamilton acknowledged that while the usual time lag associated with this analysis means that it "reinforces recent messaging rather than throwing up too many surprises", it does formally evidence the step change improvement in funding seen by many DB schemes following the Truss mini-budget.

“Based on the figures, more than two-thirds of DB members should now have been in a scheme with a funding surplus at their last valuation (with increasingly prudent approaches also being built in)," he continued.

“We expect this level of security to continue to increase, which is fantastic news for members, although it may be hidden slightly in future analysis by changes to the new funding regime.

“However, perhaps the most surprising statistic was that around 250 schemes still needed to extend their recovery plans despite the general funding improvements, showing that even in a ‘good’ year a significant number of schemes will face specific challenges.

“Continuing to understand risks, monitor developments and have contingency plans in place remain invaluable tools to trustees in managing their schemes.”

This was echoed by Standard Life business development and origination director, Claire Altman, who said that trustees will need to give "careful consideration" to their endgame strategies, with improved funding levels meaning many more schemes are now in a position to secure member benefits more robustly and with greater certainty.

"While the evolving regulatory landscape may lead to some waiting for clarity around what the Pension Schemes Bill might mean for schemes, particularly with regard to surplus extraction, trustees continue to prioritise their core responsibility to secure member benefits," she stated.

"Trustees are mindful that market conditions and covenants can change, and current surpluses offer a window that may not be open indefinitely. Recent market activity reflects this with several large transactions announced, and total volumes for 2025 expected to reach £40bn.”

---