Defined benefit (DB) pension scheme members could benefit from a 5 per cent uplift in their pension benefit if the corporate sponsor defers buyout by five years, analysis from Hymans Robertson has revealed.

According to the analysis, FTSE 350 DB schemes deferring buyout by five years could generate an aggregate surplus of £100bn.

Passing two thirds of this back to sponsors would provide the FTSE 350 a cash boost of £70bn, which is around 20 per cent of its annual earnings, whilst also allowing schemes to increase member benefits by about 5 per cent, which Hymans Robertson suggested would be a "valuable uplift" in the current high inflationary world.

Although the survey found that, on average, DB pension schemes were six years away from buyout, the firm suggested that it will take "far longer" than this to reach insurance buyout.

In particular, the report estimating that, by 2025, just under 15 per cent of FTSE 350 DB liabilities could be transferred to insurance companies, while 30 per cent are expected to be transferred by 2030.

However, Hymans Robertson also noted that these timescales are dependent on scheme preparation and insurer capacity, warning that insurers are constrained in the area of human capital.

In light of this, the firm emphasised the need for schemes to take active steps to prepare, such as data cleansing and GMP equalisation, well in advance of significant risk transfers.

Commenting on the findings, Hymans Robertson head of corporate DB, Alistair Russell-Smith, stated: “The estimate in our 2022 FTSE 350 report has shown that FTSE 350 schemes are, on average, now only six years away from being able to secure buyout with an insurance company.

"For many DB schemes this will be welcome news and they will be heading on a route to buyout that it exactly the right path for them.

“However, for some, deferring buyout may be an option or even a necessity if there is insufficient insurer capacity to deliver these timescales, if schemes’ data or assets are not ready, or if the accounting settlement loss is not palatable.

“Delaying buyout clearly comes with the ongoing risk exposure of a DB scheme and should not be taken lightly. However, there are potential benefits in terms of a cash boost for sponsors and a benefit uplift for members.”

The report also highlighted the impact of recent yield rises on scheme durations, explaining that this has brough significant maturity closer for all schemes.

Indeed, according to the report, under The Pensions Regulator's (TPR) new funding regime 45 per cent of the FTSE 350 should be able to comply with fast track without increasing cash contributions.

However, the analysis found that complying with fast track will increase cash contributions for 55 per cent of the FTSE 350, particularly for the 10 per cent with schemes that are already at significant maturity and need to be fully funded.

Commenting on this, Russell-Smith continued: “With TPR’s second consultation on the new funding regime expected imminently and the regime itself expected to go live in late 2023, now is the time for corporates to start assessing their options.

“Companies will be able to adopt a “fast track” or “bespoke” funding strategy. While fast track meets preferred minimum standards, bespoke allows more flexibility at the risk of more regulatory intervention.

“Fast track would seem the obvious route for the 45 per cent of companies that can adopt this route without increasing contributions.

"The other 55 per cent should consider their options more carefully, and in particular assess if a reasonable funding plan can be developed under bespoke without increasing cash contributions.”

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