Scheme sponsors have been urged to take proactive action, after the latest analysis from LCP's Pensions Explorer revealed that the combined IAS19 surplus of FTSE 100 defined benefit (DB) pension schemes remained "robust" at £130bn as of 31 December 2022.

The firm noted that although scheme funding levels have fallen from the record highs recorded over the past two quarters, they are still standing at strong levels and have more than doubled over 2022.

Additionally, LCP pointed out that while some schemes were hit by reductions in hedging levels and lost out financially in the aftermath of September’s mini-Budget, "many more" have beaten funding targets and are in their healthiest position yet.

In light of this, the firm argued that scheme sponsors may need to switch their focus to consider how they will best manage and generate value from this surplus, emphasising the need for proactive action in the year ahead.

In particular, LCP encouraged sponsors to get an updated picture of the scheme’s funding position against long term targets, explaining that if 2022 has led to material improvements, it could be in the interests of the business to make sure cash is not being unnecessarily committed directly to the pension scheme.

The firm also suggested that, where appropriate, sponsors may wish to review required contributions or consider offering alternative forms of protection in the improved funding environment.

Re-assessing the scheme's ultimate target and timescales, and the strategy for best achieving it, may also be required, as LCP argued that sponsors should look to ‘own’ how the final part of the journey is run, including proactively taking proposals to trustees rather than responding reactively.

LCP partner, Jonathan Griffith, commented: “Whilst we are seeing funding levels dipping below the record levels over the autumn, it’s clear that for the majority there has still been a huge improvement in funding levels over 2022.

"This has shifted the focus for many companies towards surplus management and generating value from future pensions actions.

“Pension scheme sponsors have waited 20 years to be in the position they find themselves in today – 2023 is going to be a pivotal year for ensuring sponsors’ objectives are fully reflected throughout the next stages, whether that be achieving optimal terms on settling liabilities or running the scheme on to generate value.”

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