The estimated aggregate IAS19 surplus for the FTSE100's UK defined benefit (DB) pension schemes was £40bn as of year-end 2024, LCP's annual analysis has revealed, marking the fifth year in a row showing an overall surplus.

Whilst this equates to an average surplus of over £600m for every FTSE100 company with a UK DB pension scheme, LCP clarified that the surpluses are unevenly distributed, with five companies accounting for half of the total.

According to the analysis, the five companies with the largest surpluses were HSBC, NatWest, BP, Barclays, and Lloyds Banking Group, which collectively held over £20bn of the £40bn surplus.

Given this, LCP stressed that these schemes were now assets, not liabilities, on balance sheets, pointing out that some companies' pension surplus after restrictions equated to over 8 per cent of their market value, illustrating the scale of the ultimate opportunity.

It also argued that this could offer "huge" opportunities for investment, particularly given the surplus proposals recently announced by the government, with a Pensions Bill due before summer recess.

Indeed, LCP argued that the health of these schemes gives companies new opportunities, such as securing their pensions and moving on or to exploit what are expected to be new freedoms from the government to use their surplus creatively, pay pensions to today's workers, boost pensions for those in the DB scheme, invest more in the business, or pay a return to shareholders.

However, the report showed that DB de-risking has also continued. as one in six FTSE 100 companies with UK DB pension schemes undertook an insurance transaction of some kind in 2024.

LCP partner, Luke Hothersall, commented on the findings: "When schemes first went into surplus a few years ago, this was written off as a flash-in-the-pan event or similar to the fleeting surpluses of the 1990s.

"Now, after five years, it seems that surpluses could be here to stay, having survived the volatility of the last few years, including the UK gilt crisis, war in Europe, a global pandemic and trade war uncertainties."

LCP partner, Phil Cuddeford, added: "Traditional risks associated with DB schemes are now largely mitigated. There is an opportunity under current legislation for some to run-on over the medium to longer term and use built-up surpluses for better member and company outcomes.

"Further, government actions have the potential to introduce game-changing flexibilities for sponsors to access DB surplus and provide value to members, as well as new investment opportunities.

"This will by no means be right for everyone, but all sponsors and schemes should be taking stock."

The report also revealed that there has been a "steady march" into bonds over recent years, reducing investment risk and protecting benefits for scheme members, as over £200bn of FTSE100 UK pension scheme assets are tied up in bonds and cash.

This corresponds to 9.5 times more being invested in bonds and cash than equities.

The research also revealed that there is a "sizeable" proportion of FTSE100 companies that have elected to not provide any disclosure narrative regarding the Virgin Media judgment, and few disclosed that they have completed an exhaustive investigation.

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