Pension scheme trustees have been urged to take the time to review their endgame options, after industry analysis revealed that UK defined benefit (DB) funding levels have continued to improve, despite ongoing volatility.

Analysis from XPS Pensions found that, despite the Bank of England holding interest rates steady for the first time since late 2021, the aggregate surplus of UK DB pension schemes stood at around £169bn at the end of September.

Aggregate scheme assets were also down over the month driven by schemes’ hedging strategies.

The tracker showed that, overall, across September 2023, UK pension schemes’ funding positions rose by around £14bn against long-term funding targets.

This was based on assets of £1,421bn and liabilities of £1,252bn, with the aggregate funding level of UK pension schemes on a long-term target basis reaching 113 per cent as of 25 September 2023.

Analysis from LCP also found that the combined IAS19 pensions surplus for UK pension schemes of the FTSE100 companies currently stands at around £70bn.

The tracker showed that despite ongoing market volatility, UK pensions remain in an "incredibly strong" financial position just over one year on from the mini-Budget.

In light of these improvements, LCP urged pension scheme trustees to better understand possible factors that could potentially move the funding position materially in either direction.

In particular, the firm suggested that schemes should develop an improved understanding of how evolving mortality trends in the wake of the pandemic might impact their members.

Trustees were also encouraged to review their endgame options, as LCP argued that the recent pension scheme funding improvements are not a flash-in-the-pan, allowing sponsors and trustees the time to consider options, make informed decisions, and ensure that the chosen endgame path is still in the best interests of all stakeholders.

LCP partner, Jonathan Griffith, stated: “It’s good news that consistently strong and buoyant funding levels appear to be the new normal.

"Trustees and sponsors should focus on areas with remaining uncertainty, such as mortality trends, to make sure that their schemes continue to remain in as robust a shape as possible.

“Given the stable funding levels, sponsors and trustees have the time to review their position and reassess their endgame strategy.

"When it comes to endgame options, all sponsors should embrace the wide range of available opportunities and innovations to ensure the best possible long-term outcome for all stakeholders.”

XPS senior consultant, Mark Witkin, added: “There appears to be a shift in UK Government pensions policy to encourage DB schemes to run on and invest in growth.

"As highlighted in our recent report, our view is any role played by DB schemes in support of this policy must not risk the hard-won security of members’ benefits. Instead, DB schemes can be a source of surplus funding for investment in UK growth.

“If the government does introduce legislation that affects how surpluses can be used, then sponsors and trustees should review their ultimate objectives in the context of this shift in policy.

"Whilst settling benefits with an insurer may still be the right target for most schemes, there are circumstances in which running a scheme on over the long term can have a positive impact on pension scheme members and the financial success of the sponsoring employer.”

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