Defined benefit (DB) pension scheme sponsors have been urged to be proactive and take advantage of new opportunities, with a report LCP highlighting a number of new endgame options that are available under the revised DB Funding Code.

LCP noted that, for the fourth consecutive year, UK pension schemes of FTSE100 companies have maintained strong accounting surpluses, with a surplus of around £60bn at the end of September 2024, representing a funding level of approximately 120 per cent.

The firm said that this positive financial trajectory offers sponsors more endgame strategies, with both sponsors and their trustees increasingly looking to explore alternatives to traditional buyouts, such as superfunds or capital-backed journey plans.

According to LCP, running-on for a period to extract value from surplus is also gaining popularity, with over half of schemes above £500m now targeting this rather than choosing to buyout at the earliest opportunity.

Given this, LCP said that any decision around the right endgame that was made more than a year or two ago needs "urgent" review, arguing that those who are proactive can seize new opportunities to make the most of their scheme that were simply not available even a few years ago.

The updated DB Funding Code has also created new opportunities, as LCP pointed out that sponsors are now required to agree on a funding and investment strategy with their trustees, allowing them to share their thinking and create a plan that benefits both sponsors and members.

The code also placed greater emphasis on the strength of the sponsor covenant, giving more flexibility to schemes backed by strong sponsors.

In light of this, the report outlined various strategies sponsors can use to reassure trustees and regulators about the security of their pension commitments.

LCP partner and lead author, Phil Cuddeford, said: “DB pension scheme sponsors should continue to shift their mindset from viewing challenges as obstacles to seeing where the new opportunities lie.

"With the regulatory and economic landscape constantly evolving, it’s essential to focus on emerging opportunities and take advantage of options that simply didn’t exist a few years ago.”

However, the report warned that there are also risks that sponsors must navigate in today’s regulatory and economic environment, encouraging sponsors to stay prepared and adaptable in response to economic changes.

In addition to this, the report highlighted the growing threat of cyber risks, revealing that cyber risk and risks related to artificial intelligence are top of most risk registers.

Indeed, while new technologies can enhance member engagement and streamline operations, LCP warned that they also increase the vulnerability to cyber attacks, stressing the need for sponsors and trustees working together to create robust cyber response strategies to protect scheme members.

LCP partner, Steve Webb, stated: “Risks are evolving in many forms, from cyber threats to geopolitical uncertainties.

"Now, more than ever, it’s crucial for corporate sponsors to reassess their strategies and work closely with trustees to address and manage these risks effectively.”

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